This paper presents the effect of groundwater on tunnel excavation. Fundamental issues in tunneling under high groundwater table are discussed and the effect of groundwater on tunnel excavation was examined using a 3D stress-pore pressure coupled finite-element analysis. Based on the results the interaction mechanism between the tunnelling and groundwater is identified for cases having different lining permeabilities. Examined items include pore pressures around lining and lining stresses. Face deformation behavior as well as ground surface movement patterns was also examined. Besides, the effect of grouting pattern was investigated. The results indicated that the effect of groundwater on tunnel excavation increases lining stresses as well as ground movements, and that the tunnel excavation and groundwater interaction can only be captured through a fully coupled analysis. Implementations of the findings from this study are discussed in great detail.