Cytoplasmic flows are widely emerging as key functional players in development. In early Drosophila embryos, flows drive the spreading of nuclei across the embryo. Here, we combine hydrodynamic modeling with quantitative imaging to develop a two-fluid model that features an active actomyosin gel and a passive viscous cytosol. Gel contractility is controlled by the cell cycle oscillator, the two fluids being coupled by friction. In addition to recapitulating experimental flow patterns, our model explains observations that remained elusive and makes a series of predictions. First, the model captures the vorticity of cytosolic flows, which highlights deviations from Stokes’ flow that were observed experimentally but remained unexplained. Second, the model reveals strong differences in the gel and cytosol motion. In particular, a micron-sized boundary layer is predicted close to the cortex, where the gel slides tangentially while the cytosolic flow cannot slip. Third, the model unveils a mechanism that stabilizes the spreading of nuclei with respect to perturbations of their initial positions. This self-correcting mechanism is argued to be functionally important for proper nuclear spreading. Fourth, we use our model to analyze the effects of flows on the transport of the morphogen Bicoid and the establishment of its gradients. Finally, the model predicts that the flow strength should be reduced if the shape of the domain is more round, which is experimentally confirmed in Drosophila mutants. Thus, our two-fluid model explains flows and nuclear positioning in early Drosophila , while making predictions that suggest novel future experiments.