The demand for small-size multi-stage hydraulic turbines is experiencing rapid growth due to the ongoing efforts towards energy conservation and emission reduction. On account of their compact structural design, these turbines feature a more intricate internal flow configuration, rendering them prone to the creation of low-pressure zones, resulting in vapor–liquid two-phase flow, accompanied by the development of intense vibrations and noise, thereby adversely affecting the safety and stability of turbine operations. Concurrently, an innovative method for analyzing flow fields has been formulated combined with two-dimensional frequency domain visualization technology and proper orthogonal decomposition, serving to establish a diagnostic and optimization framework for the unsteady flow structures within rotating machinery by considering the features related to frequency distribution, spatial distribution, and energy contributions. It was found that there are two main unsteady flow structures which are the areas with high risks of vaporization under this study condition. According to the flow characteristics of the analysis, an optimization scheme was proposed to improve the two-phase flow problem in the secondary impeller, and the preliminary results were satisfactory.