Two-phase expansion processes have emerged as a promising technology for enhancing energy efficiency in power generation, refrigeration, waste heat recovery systems (for example, partially evaporated organic Rankine cycle, organic flash cycle, and trilateral flash cycle), oil and gas, and other applications. However, despite their potential, widespread adoption is hindered by inherent challenges, particularly energy losses that reduce operational efficiency. This review systematically evaluates the current state of two-phase expansion technologies, focusing on the root causes, impacts, and mitigation strategies for expansion losses. This work used Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA). Using the PRISMA framework, 52 relevant publications were identified from Scopus and Web of Science to conduct the systematic review. A preliminary co-occurrence analysis of keywords was also conducted using VOSviewer version 1.6.20. Three clusters were observed in this co-occurrence analysis. However, the results may not be significant. Therefore, the extended work was done through a comprehensive analysis of experimental and simulation studies from the literature. This study identifies critical loss mechanisms in key components of two-phase expanders, such as the nozzle, diffuser, rotor, working chamber, and vaneless space. Also, losses arising from wetness, such as droplet formation, interfacial friction, and non-equilibrium phase transitions, are examined. These phenomena degrade performance by disrupting flow stability, increasing entropy generation, and causing mechanical erosion. Several losses in the turbine and volumetric expanders operating in two-phase conditions are reported. Ejectors, throttling valves, and flashing flow systems that exhibit similar challenges of losses are also discussed. This review discusses the mitigation and the strategy to minimize the two-phase expansion losses. The geometry of the inlet of the two-phase expanders plays an important role, which also needs improvement to minimize losses. The review highlights recent advancements in addressing these challenges and shows optimization opportunities for further research.