Emulsions and bubbly suspensions are known to exhibit drag reduction behavior in turbulent flow, that is, the measured friction factors in turbulent flow fall well below the values expected on the basis of laminar flow properties. The mechanism of drag reduction in these two-phase dispersions is not well understood. This study proposes a new mechanism of drag reduction in turbulent flow of emulsions and bubbly suspensions. According to the proposed mechanism, drag reduction in emulsions and bubbly suspensions is caused by a significant reduction in effective viscosity of the dispersion when the flow regime is changed from laminar to turbulent. The experimental friction factor data on unstable and surfactant-stabilized water-in-oil (W/O) and oil-in-water (O/W) emulsions are explained in terms of the proposed mechanism.