Giant unilamellar vesicles (GUVs) are widely used as in vitro model membranes in biophysics and as cell-sized containers in synthetic biology. Despite their ubiquitous use, there is no one-size-fits-all method for their production. Numerous methods have been developed to meet the demanding requirements of reproducibility, reliability, and high yield while simultaneously achieving robust encapsulation. Emulsion-based methods are often praised for their apparent simplicity and good yields; hence, methods like continuous droplet interface crossing encapsulation (cDICE), which make use of this principle, have gained popularity. However, the underlying physical principles governing the formation of GUVs in cDICE and related methods remain poorly understood. To this end, we have developed a high-speed microscopy setup that allows us to visualize GUV formation in real time. Our experiments reveal a complex droplet formation process occurring at the capillary orifice, generating >30 μm-sized droplets and only in some cases GUV-sized (∼15 μm) satellite droplets. According to existing theoretical models, the oil-water interface should allow for the crossing of all droplets, but based on our observations and scaling arguments on the fluid dynamics within the system, we find a size-selective crossing of GUV-sized droplets only. The origin of these droplets remains partly unclear; we hypothesize that some small GUVs might be formed from large droplets sitting at the second interface. Finally, we demonstrate that proteins in the inner solution affect GUV formation by increasing the viscosity and altering the lipid adsorption kinetics. These results will not only contribute to a better understanding of GUV formation processes in cDICE but ultimately also aid in the development of more reliable and efficient methods for GUV production.