To investigate the effect of water on the mechanical properties and acoustic emission (AE) characteristics of coal in the failure and deformation processes. Coal samples of different content were subjected to uniaxial compression tests and AE signals were monitored. The characteristics of the AE signals were further analyzed using fractal analysis. The results show that saturated coal samples have substantially reduced mechanical properties such as uniaxial compressive strength (UCS), dissipation energy, peak stress, and elastic modulus. Under loading, stress–strain curves are characterized by five distinct stages: (1) compaction; (2) linear elastic; (3) crack stable propagation; (4) crack accelerating propagation; and (5) post-peak and residual stages. Using phase-space theory, a novel Grassberger Procaccia (GP) algorithm was utilized to find the AE fractal characteristics of coal samples in different stages. It is significant to note that AE energy does not exhibit fractal characteristics in either the first or second stages. Contrary to the first two stages, the third stage showed obvious fractal characteristics. Fractal analysis of AE time sequences indicates that fractal dimension values change as stress increases, indicating the initiation of complex microcracks in coal. In the fourth stage, the fractal dimension rapidly declines as the strength reaches its limit, indicating the occurrence of macrocracks. However, fractal dimensions continued to decrease further or increased slightly in the fifth stage. Consequently, the coal begins to collapse, potentially resulting in a disaster and failure. It is, therefore, possible to accurately predict coal and rock dynamic failures and microcrack mechanisms by observing the subsequent sudden drop in the correlation dimension of the AE signals in response to different stages of loading.