Ebullated bed reactors used in heavy oil upgrading internally recycle up to 90% of net liquid flow to maintain fluidized conditions. Internal phase separators result in significant gas re-entrainment within the recycled liquid, leading to high gas holdup (40 to 60%), reduced processing capacity, and over-cracking of vapor products. Phase separation in two commercial designs is assessed using computational fluid dynamics and compared to pilot-scale results. Liquid short-circuiting within first-generation recycle pan designs was identified as a key factor, leading to a reduced separation efficiency of 1 to 2 mm bubbles compared to second-generation flow-through designs. Negligible performance improvements were observed for <1 mm bubbles, highlighting the need to exercise caution when scaling these designs to hydroprocessing conditions where submillimeter bubble sizes are predominant. A practical correlation for gas separation efficiency based on the liquid residence time is proposed and compared to numerical and experimental data.