The rotating stall is a kind of flow phenomenon in the impeller harming the navigation speed of vessels propelled by a waterjet propulsion device when the waterjet propulsion device operates at the small flow rate conditions. The numerical simulated hydraulic performance was compared with experimental results so that the reliability of the CFD method was verified. The grooves are proposed before the inlet of an impeller to suppress the rotating stall. The orthogonal experiment is designed to seek the appropriate values of the parameters such as the length, width, depth, and number of the groove. The results show that the width of groove has the greatest influence on the performance of the device, followed by the number, the depth, and the length. The width, number, depth, and length of the selected groove scheme are 3.10 × 10−2D, 72, 3.10 × 10−2D, and 7.75 × 10−2D, respectively. At the rotating stall conditions, the selected groove scheme is numerically calculated. In contradistinction to the original scheme, it is found that the groove can improve the flow in the impeller and enhance the head of valley point condition, but the efficiency drops due to the increasing local hydraulic loss near the groove. When the groove is installed, the positive slop region on the flow rate-head curve disappears related to the static pressure difference on the blade, especially depending on the static pressure on the suction side. The flow pattern on the span surface of the vortex core is smooth, and then, the head increases. On the contrary, the head decreases. The outcome is beneficial to improve the performance of the waterjet propulsion device and enrich the rotating stall theory.