Self-potential (SP) signals that are generated under two-phase flow conditions could be used to study vadose zone dynamics and to monitor petroleum production. These streaming-potentials may also act as an error source in SP monitoring of vulcanological activity and in magnetotelluric studies. We propose a two-phase flow SP theory that predicts streaming currents as a function of the pore water velocity, the excess of charge in the pore water, and the porosity. The source currents that create the SP signals are given by the divergence of the streaming currents, and contributions are likely to be located at infiltration fronts, at the water table, or at geological boundaries. Our theory was implemented in a hydrogeological modeling code to calculate the SP distribution during primary drainage. Forward and inverse modeling of a well-calibrated 1D drainage experiment suggest that our theory can predict streaming potentials in the vadose zone.