The paper sets out necessary conditions for the existence of a phase transition in a steady state one-dimensional vertical hydrothermal flow. The entropy inequality (reflecting the presence of capillarity) and a thermodynamical inequality at the phase boundary are combined to delineate the region of permissible flow states in the mass-energy flow plane. In particular, it is shown that for small mass flow/permeability ratios the configuration consisting of single-phase liquid lying over a vapor-dominated two-phase fluid is not stable. These and other results are discussed in the context of several field examples, including Kawah Kamojang (Indonesia) and Wairakei (New Zealand). ¿ American Geophysical Union 1996