We provide a rather complete description of the sharp regularity theory for a family of heterogeneous, two-phase variational free boundary problems, $\mathcal{J}_\gamma \to $ min, ruled by nonlinear, $p$-degenerate elliptic operators. Included in such family are heterogeneous cavitation problems of Prandtl-Batchelor type; singular degenerate elliptic equations; and obstacle type systems. The Euler-Lagrange equation associated to $\mathcal{J}_\gamma$ becomes singular along the free interface $\{u= 0\}$. The degree of singularity is, in turn, dimed by the parameter $\gamma \in [0,1]$. For $0< \gamma < 1$ we show local minima is locally of class $C^{1,\alpha}$ for a sharp $\alpha$ that depends on dimension, $p$ and $\gamma$. For $\gamma = 0$ we obtain a quantitative, asymptotically optimal result, which assures that local minima are Log-Lipschitz continuous. The results proven in this article are new even in the classical context of linear, nondegenerate equations.