In a typical gas lift system, slippage between gaseous and liquid phases results in increased water cut and decreased reservoir pressure which reduces lifting efficiency and causes low oil recovery. Pig lift is a novel artificial lift technique proposed in recent years for effectively reducing liquid accumulation and increasing two-phase flow stability in certain special cases, such as high gas-liquid ratio, low reservoir pressure, horizontal and/or rather deep wells, highly viscous or waxy oil, sand production, etc. In this paper, a theoretical study is conducted to simulate the dynamic gas-liquid flow behaviour and optimize the operating parameters of a continuous pig lift system. First, two new flow theories, i.e., non-instantaneous separation and three segment flow, are proposed to simulate the transient two-phase upward flow process during which the pig is launched periodically into the injecting gas. Then, a two-phase flow model, which comprises a set of one-dimensional mass, momentum, energy balance equations, and the equation of state for real gas, is developed to accurately predict gas-liquid flow behaviour in the wellbore. An algorithm to solve this transient flow problem by coupling the gas-liquid flow model and the flow model with the pig is developed and implemented. Finally, a method for the design and optimization of continuous pig lift wells is presented by using nodal system analysis. The detailed simulation results show that, compared with conventional gas lift, pig lift decreases the pressure drop in the wellbore and reduces the slippage loss significantly. The pig launching frequency is the most important parameter in the pig lift system. Increasing the pig launching frequency decreases slippage loss; when the pig launching frequency reaches a certain value, which is the so-called optimal pig launching frequency in this paper, the pressure drop tends towards a non-slippage pressure drop. At the given bottomhole pressure and production rate, the wellhead flow pressure increases with the increase of time, and finally, is close to non-slippage wellhead flow pressure under the optimal pig launching frequency. The gas lift performance curve can be used as an optimization tool to select the optimal operating parameters for the pig lift system.