In many previous tunnel analyses, the axial in-situ stress was ignored. In this work, its effect on the deformation and failure of the surrounding rock of a deep tunnel was revealed, considering the objective strain softening and dilatancy behavior of the surrounding rock. Analysis based on the incremental plastic flow theory was conducted, and C++ was used to write a constitutive model for numerical simulation to verify and further analyze this effect. Then, the results were validated by the field monitoring data of a coal mine gateway. Results show that the effect of the axial in-situ stress σa0 is more significant when strain softening is considered, compared with the results of a perfectly elastoplastic model. When the axial stress σa is σ1 or σ3 at the initial yield, an increase or decrease in σa0 intensifies the deformation and failure of the surrounding rock. When σa is σ2 at the initial yield, 3D plastic flow partly controlled by σa may occur, and an increase in σa0 intensifies the deformation and failure of the surrounding rock. The effect of σa0 will be amplified by considering dilatancy. Considering both strain softening and dilatancy, when σa0 is close to the tangential in-situ stress σt0 or significantly greater than σt0 (1.5 times), σa will be σ2 or σ1 at the initial yield, and then 3D plastic flow will occur. In the deformation prediction and support design of a deep tunnel, σa0 should not be ignored, and the strain softening and dilatancy behavior of the surrounding rock should be accurately considered.