Multicomponent liquid drops in a host liquid are very relevant in various technological applications. Their dissolution or growth dynamics is complex. Differences in solubility between the drop components combined with the solutal Marangoni effect and natural convection contribute to this complexity, which can be even further increased in combination with the ouzo effect, i.e. the spontaneous nucleation of microdroplets due to composition-dependent miscibilities in a ternary system. The quantitative understanding of this combined process is important for applications in industry, particularly for modern liquid–liquid microextraction processes. In this work, as a model system, we experimentally and theoretically explore water–ethanol drops dissolving in anethole oil. During the dissolution, we observed two types of microdroplet nucleation, namely water microdroplet nucleation in the surrounding oil at drop mid-height, and oil microdroplet nucleation in the aqueous drop, again at mid-height. The nucleated oil microdroplets are driven by Marangoni flows inside the aqueous drop and evolve into microdroplet rings. A one-dimensional multiphase and multicomponent diffusion model in combination with thermodynamic equilibrium theory is proposed to predict the behaviour of spontaneous emulsification, i.e. microdroplet nucleation, that is triggered by diffusion. A scale analysis together with experimental investigations of the fluid dynamics of the system reveals that both the solutal Marangoni flow inside the drop and the buoyancy-driven flow in the host liquid influence the diffusion-triggered emulsification process. Our work provides a physical understanding of the microdroplet nucleation by dissolution of a multicomponent drop in a host liquid.