This research delves into the intricate dynamics of water droplets impacting an oil pool, focusing on how various impact velocities and oil viscosities influence crater formation. The study employs Computational Fluid Dynamics (CFD) and the Volume of Fluid (VoF) approach to effectively establish the multiphase interaction. It focuses on the investigation of phase interactions during impact, with specific emphasis on the effect of Froude number and oil viscosity. The research integrates a thorough parametric analysis and systematic variations in Froude numbers and oil viscosities to explore their impact on the dynamic properties of crater formation and the changes in crater morphology, thereby elucidating the fundamental physics of these interactions during droplet impact. Upon thorough examination, it is observed that both the maximum crater depth and the time taken for the crater to reach this maximum depth are majorly influenced by varying Froude numbers and oil viscosities. By offering critical insights into the nuances of liquid–liquid interactions, the research paves the way for advancements in related industrial processes and further explorations in this field.