A refrigerant system is provided with at least two stages of compression connected in series. An intercooler is positioned intermediate the two stages and is cooled by an indoor air stream. The intercooler is positioned to be in a path of air flow passing over an indoor heat exchanger, and preferably downstream of the indoor heat exchanger, in relation to this airflow. The intercooler cools the refrigerant flowing between the two compression stages as well as provides the reheat function. Benefits with regard to system performance (efficiency, capacity and reliability) are achieved with no additional circuitry or components required to provide the intercooler and reheat functions. This invention is particularly important for the CO2 refrigerant systems operating in the transcritical cycle. Methods of control are presented for both the intercooler and reheat functions.