We examined the two-phase hydro-mechanical coupled process for subsurface applications. First, we exclusively derived governing equations for capillary pressure of the wetting fluid and pressure of the non-wetting fluid as a primary variable to make use of the global finite element model in the two-phase flow system. For the coupling process based on the derivation, we developed a module to couple the two-phase flow and the mechanical deformation for numerical modeling. For the verification of the coupling module, we solved a benchmark problem, which has an analytical solution for a single-phase hydro-mechanical system. To compare the results with those produced with the same coupling scheme of an existing module, we addressed the same benchmark problem with TOUGH–FLAC. After verification, we demonstrated the module for the two-phase hydro-mechanical coupled application of CO₂ storage at the field scale, the Otway Basin, Australia. The formation of caprock and reservoir in lithology had a significant effect on the movement of the CO₂ plume, providing a predominant pathway. Based on the mechanical analysis at the core of the CO₂ plume, the amount of pore pressure increase during the CO₂ injection period did not lead to noticeable damage in the formation.