Electric motors with high-power densities are required for the implementation of electromobility. To achieve this, direct liquid cooling methods are increasingly being considered, in which oil is injected into the motor compartment. This results in a two-phase flow that can be used for efficient cooling. However, the oil, which can also penetrate the air gap between the rotor and stator, can also lead to additional losses due to increased friction. Since little is known about the two-phase flow in such systems, especially in the air gap, it is investigated by means of simple optical visualizations and high-speed laser-induced fluorescence imaging as well as torque measurements. The measurements are carried out in the air gap of an optically accessible generic model of a directly cooled electric motor. Speed variations were performed from 100 to 2000 rpm, and three different two-phase flow regimes were observed. At low speeds (Flow Regime 1), the air gap is filled locally with oil in radial direction, in the medium speed range (Flow Regime 2) with foam, while at high speeds (Flow Regime 3) separated films were observed on the rotor and stator. The torque difference between the two-phase and single-phase operation, which quantifies the mechanical losses due to the injected oil, increased continuously due to the oil in the air gap until it reached a maximum in Flow Regime 2 due to foam formation. In Flow Regime 3, the torque difference was negative. This was attributed to the fact that the grooves in the stator were filled with oil, thus reducing the turbulence generation of the air flow.