Abstract: Physically-based liquid animations often ignore the influence of air, giving up interesting behavior. We present a new method which treats both air and liquid as incompressible, more accurately reproducing the reality observed at scales relevant to computer animation. The Fluid Implicit Particle (FLIP) method, already shown to effectively simulate incompressible fluids with low numerical dissipation, is extended to two-phase flow by associating a phase bit with each particle. The liquid surface is reproduced at each time step from the particle positions, which are adjusted to prevent mixing near the surface and to allow for accurate surface tension. The liquid surface is adjusted around small-scale features so they are represented in the grid-based pressure projection, while separate, loosely coupled velocity fields reduce unwanted influence between the phases. The resulting scheme is easy to implement, requires little parameter tuning, and is shown to reproduce lively two-phase fluid phenomena.