Pumping systems reduce their efficiency and lifetime when working with free gas at the pump inlet. Downhole gas separators are usually installed upstream of the pump in oil production wells to avoid free gas, but they cannot handle high void fraction. Studies on the so-called inverted-shroud gravitational separator indicate that it is possible to achieve gas separation efficiencies (GSEs) higher than 97%, even in the presence of very high void fraction. Gas separation inside this kind of separator works in two stages. The most critical stage is related to gas entrainment caused by a plunging free-surface flow in an annular channel formed by the production tubing and the separator itself, where strong kinetic energy dissipation takes place. Studies regarding this phenomenon in inverted-shroud separators are scanty. In this study, we present a semianalytical model supported by an empirical turbulent energy-dissipation correlation. The proposed correlation is based on dimensional analysis. New experimental data of the statistical distributions of bubble diameters during the gas entrainment process are presented. We measured bubbles diameters using a high-speed video camera and an edge detection algorithm. Data of both bubble diameters and GSE were used to adjust and validate the proposed model. The model establishes a transition boundary that separates a region of total gas separation (TGS) from a region of partial gas separation (PGS). In other words, it provides the operating envelope of the separator. The results can be used as a starting point for the design of inverted-shroud separators for field applications.