Multiphase flows are commonly found in chemical engineering processes such as distillation columns, bubble columns, fluidized beds and heat exchangers. The physical boundaries of domains in numerical simulations of multiphase flows are generally defined by a conformal unstructured mesh which, depending on the complexity of the physical system, results in time-consuming mesh generation which frequently requires user-intervention. Furthermore, the resulting conformal unstructured mesh could potentially contain a large number of skewed elements, which is undesirable for numerical stability and accuracy. The diffuse-interface approach allows for the use of a simple structured meshes to be used while still capturing the desired physical (e.g., solid-fluid) boundaries. In this work, a novel diffuse-interface method for the imposition of physical boundaries is developed for the incompressible two-fluid multiphase flow model. This model is appropriate for dispersed multiphase flows which are pervasive in chemical engineering processes, in that this flow regime results in high levels of mass and energy transfer between phases. A diffuse interface is used to define the physical boundaries and boundary conditions are imposed by blending the conservation equations from the two-fluid model with that of the nondeformable solid. The results from the diffuse-interface method are compared with results from a conformal unstructured mesh for different interface functions and widths. For small interface widths, the accuracy of the flow profile is unaffected by the choice of interface function and the phase fraction distribution and flow behavior are within 3% compared to those from a conformal mesh. As the interface width increases, the diffuse-interface solution deviates from the conformal mesh solution in both the localized gas fraction and the overall gas hold-up, resulting in a difference up to 30%.