The gas–liquid two-phase flow in a transonic compressor stage, Stage 35, under wet compression was numerically simulated by Computational Fluid Dynamics (CFD) technique along with Euler–Lagrange approach. The evaporation and cooling effect of water droplets on compressor performance and stable flow range was investigated by changing the inlet spraying conditions (droplet sizes and injected water flow rates). Further, the influencing mechanism was explained by the changes of rotor velocity triangle, rotor specific work, blade loading, and tip leakage flow before and after spraying. The results indicate that wet compression can improve the pressure ratio and efficiency of the compressor, but, under different comparison conditions before and after spraying, the influence on compressor power consumption has different trends. Wet compression improves the compressor specific power consumption under constant flow rate conditions, while it reduces compressor specific power consumption under equal pressure ratio conditions. Additionally, the stalling flow rate of compressor increases by wet compression effect, and the increasing degree of stalling flow rate is positively correlated with the increasing level of pressure ratio. The evaporative and cooling effect of droplets reduces the airflow temperature at rotor outlet, leading to the increase of airflow density, the decrease of axial velocity, which results in the promotion of rotor specific work—this is the main reason for the improvement of pressure ratio under constant flow rate conditions. Under wet compression condition, the enhanced blade loading near tip strengthens the tip leakage flow, making the compressor achieve stall criteria at larger flow rate, which is the cause for wet compression influencing the compressor stall boundary.