In the field of oil and gas exploration, drilling fluid is regarded as the essential “blood” for drilling, which mainly helps to control the formation pressure and remove cuttings from the well. During the drilling fluid cycle, the drilling fluid penetrates into the pores of the formation rock, thus blocking the rock pores and resulting in a decline in oil and gas recovery efficiency. Therefore, it is very important to understand the microscopic mechanism of formation damage caused by drilling fluid. However, as an important component of formation damage, the microscopic mechanism of fluid damage has not yet been clearly revealed. In this study, a new microetching model (MEM), along with displacement equipment, was designed. The pore network of rock samples was extracted from thin-section images and etched to a thin aluminum sheet by laser. Oil-based drilling fluid was used to displace the stratum water in the MEM. The displacement process was recorded by a camera and analyzed. A core flooding experiment, permeability measurement, and SEM observations were performed. The results show that, for low-porosity and low-permeability sandstone, the main forms of formation damage by drilling fluid include solid damage and liquid damage. Solid damage is mainly caused by the blockage of small pores and narrow throats with solid particles of the size 0.1~30.0 μm in drilling fluid, while liquid damage is mainly caused by the water lock and hydrocarbon lock effects formed by the oil–water two-phase interface, gas–water two-phase interface, or the oil–gas–water three-phase interface.