The present study attempts to develop an objective flow pattern indicator to identify phase inversion during liquid-liquid two-phase flow through a horizontal pipe. A novel optical probe has been used for this purpose. The probability density function (PDF) analysis and the wavelet multiresolution technique have been adopted to detect the shift of phase continuity. Further attempts have been made to understand the interfacial configurations when oil is the predominant phase in the flow passage. Since little can be revealed through visualization or photography related techniques under such conditions, the information obtained from the probe signals at low phase flow rates has been exploited for this purpose. In addition, a sampling technique has been devised to verify the distribution as obtained from the probe signals. The ambivalent range between the oil-dispersed and the water-dispersed regime has been observed to be in close agreement to the empirical and analytical equations available in literature. (c) 2006 American Institute of Chemical Engineers AIChE J, 52: 3668-3678, 2006.