The kinetics of structure development in a moderately concentrated liquid–liquid dispersion under the hydrodynamic conditions of simple shear flow has been analyzed using differential population balance equations. The existing models of the breakup and coalescence phenomena have been examined, modified, and included in the population balances to the extent necessary. It was found that in the present range of drop sizes and viscosity ratios the temporal evolution of the average drop size is primarily determined by drop breakup rather than by coalescence. It was further shown that the evolution of the size distribution function as well as the average drop size are strong functions of the viscosity ratio, exhibiting sharp changes at the critical capillary number. The role of the initial drop size distribution on the time‐dependent state of the dispersion was examined, including the path leading to a bimodal distribution.