Nematic-isotropic interfaces exhibit novel dynamics due to anchoring of the liquid crystal molecules on the interface. The objective of this study is to demonstrate the consequences of such dynamics in the flow field created by an elongated nematic drop retracting in an isotropic matrix. This is accomplished by two-dimensional flow simulations using a diffuse-interface model. By exploring the coupling among bulk liquid crystal orientation, surface anchoring and the flow field, we show that the anchoring energy plays a fundamental role in the interfacial dynamics of nematic liquids. In particular, it gives rise to a dynamic interfacial tension that depends on the bulk orientation. Tangential gradient of the interfacial tension drives a Marangoni flow near the nematic-isotropic interface. Besides, the anchoring energy produces an additional normal force on the interface that, together with the interfacial tension, determines the movement of the interface. Consequently, a nematic drop with planar anchoring retracts more slowly than a Newtonian drop, while one with homeotropic anchoring retracts faster than a Newtonian drop. The numerical results are consistent with prior theories for interfacial rheology and experimental observations. (c) 2005 Elsevier Inc. All rights reserved.