In this paper we describe the conditions under which two immiscible fluids flow atop one another (viewed perpendicular to the plane on which the channel is inscribed) in a shallow microfluidic channel. First, we predict the behavior of a two-phase system using fluid dynamic simulations with water-butanol and water-chloroform as model systems. We numerically model effect of various physical parameters, such as interfacial surface tension, density, viscosity, wall contact angle and flow velocity on the type of flow observed and find that interfacial surface tension and viscosity are the parameters responsible for formation of vertically stratified, side-by-side or segmented flows. As predicted by numerical simulations, water-chloroform system never assumes a vertically stratified configuration, while water-butanol system does when the two liquids flow at sufficiently high flow velocities. In actual experiments, we test conditions under which potentially useful two-phase systems form stable vertically stratified flows. We also demonstrate that compared to side-by-side flow schemes, shorter diffusion paths are achievable and thus the system can be used at higher flow rates to obtain the same performance. We then apply such findings to practical analytical problems such as solvent extraction and ion exchange.