Transflective LCDs use both reflective and transmissive elements in order to remain readable under strong ambient light conditions through light recycling. A transflective LCD illumination system based on the dual cell gap structure is simulated and compared to a regular LCD to assess contrast performance under influence of ambient light in terms of a user viewable image. Previous studies in the literature have not developed full system model simulations that include image output, glare and light leakage due to both microstructure geometry and polarization. The overall contrast performance is evaluated for a wide range of ambient source strengths using three different contrast metrics (ANSI, NIST and a proposed illuminance distribution contrast method). Three ambient source types (planar Lambertian, planar isotropic and a parabolic reflector) are used to simulate both office and outdoor environments. The sources were selected to simulate both specular and diffuse components of ambient lighting. The proposed contrast performance relationship between the different components of polarization leakage, microstructure leakage, and glare for both ambient and nominal backlight sources was verified in the Monte Carlo simulation models. The proposed contrast performance relationship provides a new understanding into the proper design of transflective LCD devices as control of the dark feature or black level illuminance is highly important. The proposed distribution contrast method proved to be more accurate and sensitive in assessing contrast performance than the NIST and ANSI methods. The transflective system was able to attain an average contrast performance of 10X beyond that of the regular LCD.