Summary: The precipitating quasi-geostrophic equations go beyond the (dry) quasi-geostrophic equations by incorporating the effects of moisture. This means that both precipitation and phase changes between a water-vapour phase (outside a cloud) and a water-vapour-plus-liquid phase (inside a cloud) are taken into account. In the dry case, provided that a Laplace equation is inverted, the quasi-geostrophic equations may be formulated as a nonlocal transport equation for a single scalar variable (the potential vorticity). In the case of the precipitating quasi-geostrophic equations, inverting the Laplacian is replaced by a more challenging adversary known as potential-vorticity-and-moisture inversion. The PDE to invert is nonlinear and piecewise elliptic with jumps in its coefficients across the cloud edge. However, its global ellipticity is a priori unclear due to the dependence of the phase boundary on the unknown itself. This is a free boundary problem where the location of the cloud edge is one of the unknowns. Here we present the first rigorous analysis of this PDE, obtaining existence, uniqueness, and regularity results. In particular the regularity results are nearly sharp. This analysis rests on the discovery of a variational formulation of the inversion. This novel formulation is used to answer a key question for applications: which quantities jump across the interface and which quantities remain continuous? Most notably we show that the gradient of the unknown pressure, or equivalently the streamfunction, is Hölder continuous across the cloud edge.