Two-phase flows occur frequently in nature and industrial applications, such as coastal engineering, land, air and marine propulsion, energy generation and in medical diagnostics and therapy. Many of these two-phase flows comprise essential interfacial transport mechanisms at microscale. Today, systems that comprise interfacial transport mechanisms and complex physicochemical phenomena at microscale are designed based predominantly on empirical observations, since a fundamental theoretical framework and associated predictive tools are not available. Direct numerical simulation (DNS) can provide a powerful and cost-efficient tool to study and predict the complex behaviour of two-phase flows and the associated interfacial transport mechanisms. However, despite extensive research efforts dedicated to two-phase flow modelling, substantial difficulties remain in simulating interfacial transport mechanisms at microscale. Having the means to accurately simulate interfacial transport mechanisms at microscale is an enabling technology for both industry and academia, which will aid the design of novel and improved processes as well as better consumer products, with direct economical and societal impact. The proposed research conducts an in-depth study of unprecedented detail of the complex physicochemical phenomena and transport mechanisms that govern microscopic two-phase flows. The proposed research includes the development of pioneering numerical techniques in the remit of continuum mechanics to predict the complex behaviour of two-phase flows at microscale as well as the study of interfacial transport mechanisms in two prototypical applications with immediate industrial relevance: a) two-phase microprocessor cooling and b) the dynamics of foams in lubricants. The novel numerical techniques will resolve key issues of available numerical methods and enable the DNS of interfacial transport mechanisms at microscale in a rational computational framework. The capability to directly simulate two-phase flows at microscale will not only increase our fundamental understanding of the complex physics governing interfacial transport mechanisms at microscale, but will also enable engineers to build better devices and systems that rely on such flows. Through the study of the prototypical applications, the proposed research will provide a detailed understanding of interfacial transport mechanisms at microscale, relevant to microfluidic two-phase flows in general and will directly contribute to the development of cooling systems that are capable of handling the heat generated by the next generation of microprocessors and the development of more reliable, efficient and economically friendly lubricants.