Hollow fibre renewal liquid membranes (HFRLMs) are susceptible to third-phase formation during rare earth element (REE) extraction using D2EHPA (bis(2-ethylhexyl phosphoric acid)), potentially leading to membrane fouling and decreased mass transfer efficiency. This study investigated the effects of various parameters, such as the composition of the aqueous feed and organic phases, on the third-phase formation and limiting organic concentration (LOC) of REE(III) in D2EHPA. Higher concentrations of REEs and a higher pH in the feed phase correlated with decreased mass transfer, while yttrium showed a greater propensity to induce third-phase formation compared to other REEs. Conditions favouring the use of linear aliphatic diluents, low extractant concentrations (5–10 v/v% D2EHPA) and the absence of modifiers also contributed to third-phase formation. The addition of tri-n-butyl phosphate (TBP) mitigated third-phase formation without evidence of synergy with D2EHPA. These findings provide key insights into formulating extraction systems that prevent third-phase formation in HFRLM processes.