This paper investigates the effects of phase change on the stability of a laterally heated liquid layer for the first time. The interface is open to the atmosphere and vapor diffusion is the rate-limiting mechanism for evaporation. In this configuration, the planar layer is naturally vulnerable to the formation of travelling thermal instabilities, i.e., hydrothermal waves (HTWs), due to the presence of temperature gradients along the gas-liquid interface. Recent work carried out for deformable interfaces and negligible evaporation indicates that the HTWs additionally give rise to interface deformations of similar features, i.e., physicalwaves. The study presented here reveals that phase change plays a dual role through its effect on these instabilities: the latent energy required during the evaporation process tends to inhibit the HTWs while the accompanying level reduction enhances the physical waves by minimizing the role of gravity. The dynamics of the gas phase are also discussed. The HTW-induced convective patterns in the gas along with the travelling nature of the instabilities have a significant impact on the local evaporation flux and the vapor distribution above the interface. Interestingly, high (low) concentrations of vapor are found above cold (hot) spots. The phase-change mechanism for stable layers is also investigated. The Marangoni effect plays a major role in the vapor distribution generating a vacuum effect in the warm region and vapor accumulations at the cold boundary capable of inverting the phase change, i.e., the capillary flow can lead to local condensation. This work also demonstrates the inefficiencies of the traditional phase change models based on pure vapor diffusion to capture the dynamics of thermocapillary flows. © 2014 AIP Publishing LLC.