Popular microbubble generators need great mechanical power to produce microbubbles. It is a disadvantage when the microbubble distributors are applied in industries. A novel microbubble generation system using direct-contact condensation of the mixed vapor bubbles was invented. The system has simpler construction, easier maintenance and less mechanical energy consumption than the other ones. To understand the microbubble generation, the phenomena of the direct-contact condensation of mixed vapor bubbles were observed using a high speed video camera attached to a microscopic lens. The microbubble size depends on the superficial vapor velocity, vapor composition and inner nozzle diameter. The microbubble generation mechanism consists of the mixed vapor bubble dispersion from jet plume, the breakage of the bubbles and the bubble shrinkage by condensation of steam component. By the correlation of the experimental results, the empirical equation which can estimate the median mean diameter of microbubbles distributed in water within an accuracy of ±5% was proposed in this study.