This paper carries out a study on the numerical simulation of borehole instability based on the disturbance state concept (DSC). By introducing the disturbance damage factor into the classical Mohr–Coulomb criterion for yield, we establish a finite element hydro-mechanical coupling model of borehole instability and program the relevant field variable by considering elastic–plastic deformation in borehole instability, the distribution of the damage disturbance area, the variation of porosity and permeability with the disturbance damage factor, etc. Numerical simulation shows that the borehole stability is related to the action time of drilling fluid on the wellbore, stress anisotropy, the internal friction angle of rock, and borehole pressure. A higher horizontal stress difference helps suppress shear instability, and a higher rock internal friction angle enhances shear failure around the borehole along the maximum horizontal principal stress. When considering the effect of the internal friction angle of rock, the rock permeability, disturbance damage factor, and equivalent plastic strain show fluctuation characteristics. Under the high internal friction angle of rock, a strong equivalent plastic strain area and disturbance damage area occur in the direction of the maximum horizontal principal stress. Their cloud picture shows the mantis shape, where the bifurcation corresponds to the whiskers of the shear failure area in borehole instability. This study provides a theoretical basis for solving the problem of borehole instability during drilling engineering.