We study the basic mechanism for limiting the maximum operating temperature (Tm) of InP‐based multiple‐quantum‐well (MQW) lasers emitting at a wavelength of 1.3 μm. It is shown that laser operation is characterized in terms of the temperature dependence of threshold gain (gth) by introducing a critical temperature (Tc): gth exhibits a linear relationship with temperature below Tc, while it superlinearly increases with increasing temperature above Tc. This rapid increase in gth leads to a marked increase in threshold current and a significant reduction in differential quantum efficiency above Tc. We indicate that Tc exhibits a direct correlation with Tm: the higher Tc, the higher Tm. In the temperature range above Tc, laser operation moves into a loss‐multiplication regime, where a considerable portion of the injected carriers brings about a significant increase in internal loss rather than gain due to their pileup in the separate confinement heterostructure layers. We demonstrate that an anomalous increase in internal loss, which occurs at the final stage in this loss‐multiplication regime, determines Tm of 1.3 μm InP‐based MQW lasers. © 1996 American Institute of Physics.