Summary: A two-fluid model for annular two-phase flow is presented, which incorporates realistic phase interaction terms corresponding to turbulence in the gas phase, interphase pressure differences, and profile effects (nonuniform velocity profiles); this model avoids the conundrum of illposedness associated with the simplest averaged model. It is shown that an appropriately scaled form of this model is capable of significant (asymptotic) simplification and in its reduced form is able to predict the phenomena of flooding and flow reversal in annular flow, both qualitatively and quantitatively.