A limited amount of work exists on gas–liquid flow in vertical pipe annulus, and, to the knowledge of the authors, there is no work on the literature to characterize vertical downward two-phase flow in pipe annulus. In the petroleum industry, downward two-phase in annulus is encountered on liquid-assisted gas-lift (LAGL) unloading and production operations. This study presents experimental data for pressure gradient, liquid holdup, and flow regimes for vertical downward two-phase (air and water) flow in pipe annulus. Also, the applicability of two-phase flow models are evaluated. The experimental results show that the liquid holdup is consistently higher for downward flow in annulus than in pipes for the annular flow regime, and these differences are as high as 45%. When the flow regime map for downward flow in annulus is compared with the ones in the literature for flow in pipes, it is observed that the intermittent flow in pipes occurs at lower liquid velocities than flow in annulus. The comparison between experimental data and model results also shows some discrepancy for liquid holdup and pressure gradient. These differences are high for annular and intermittent flow regimes, with errors of 100% for the liquid holdup and 200% for pressure gradient. However, the errors for bubble flow regime are much smaller, generally lower than 20%.