This paper presents the results of finite element simulations of elastic wave propagation in an underwater steel plate and the verification of a proposed method utilizing elastic wave-based damage detection. For the simulation and verification, we carried out the following procedures. First, three-dimensional finite element models were constructed using a general purpose finite element program. Second, two types of damages (mechanical defects and deteriorations) were applied to the underwater steel plate and three parameters (defect location, defect width, and depth) were considered to adjust the severity of the applied damages. Third, elastic waves were generated using the oblique incident method with a Gaussian tone burst, and the response signals were obtained at the receiving point for each defect or deterioration case. In addition, the received time domain signals were analyzed, particularly by measuring the magnitudes of the maximum amplitudes. Finally, the presence and severity of each type of damage were identified by the decreasing ratios of the maximum amplitudes. The results showed that the received signals for the models had the same global pattern with minor changes in the amplitudes and phases, and the decreasing ratio generally increased as the damage area increased. In addition, we found that the defect depth was more critical than the width in the decrease of the amplitude. This mainly occurred because the layout of the depth interfered with the elastic wave propagation in a more severe manner than the layout of the width. An inverse analysis showed that the proposed method is applicable for detecting mechanical defects and quantifying their severity.