Abstract: The sedimentary bauxite in coal-measure strata of Shanxi Province is hosted within the Carboniferous-Ordovician composite aquifer system. Revealing the mechanical response characteristics and damage evolution mechanism of the bauxite under water-rock interaction is essential for ensuring its safe and efficient extraction. The study focuses on the coal-measure bauxite from Xingxian, Shanxi. Water absorption experiments and molecular dynamics simulations are conducted to investigate its hydrophilic properties. Uniaxial compression tests are performed on specimens with varying water saturations (0, 25%, 50%, 75%, and 100%) using acoustic emission (AE) and digital image correlation (DIC) techniques to study their compressive mechanical characteristics. Scanning electron microscopy (SEM), computed tomography (CT) scanning, and friction tests are used to elucidate the water–rock interaction failure mechanism. The results show that the main component of the bauxite is diaspore, which readily forms hydrogen bonds with water molecules, manifesting macroscopically as a strong water absorption capacity. From dry to fully saturated state, the compressive strength and elastic modulus decrease from 89.866 MPa and 62.499 GPa to 42.443 MPa and 35.069 GPa, respectively. The number and duration of AE localization events gradually decrease, and the average fragmentation fractal dimension decreases from 1.63816 to 1.42168, indicating a reduction in the degree of fragmentation. The AE ringing count and cumulative ringing count peak values gradually decrease, indicating that the crack propagation rate slows down and cumulative damage decreases. Under the same stress, the principal strain value on the surface of the specimens gradually increases, indicating a weakening of deformation resistance. The mineral expansion and dissolution effects are relatively weak, whereas the reduction in intergranular friction resistance is the primary intrinsic mechanism leading to the weakening of the compressive strength of bauxite. Specimens at all saturation levels predominantly undergo tensile failure. Dry specimens primarily exhibit a transgranular fracture mode, dominated by the breaking of intragranular Al—O covalent bonds, which is macroscopically characterized by the highest proportion of tensile cracks. As saturation increases, the proportion of intergranular failure along hydrogen bonds (O2—H…O1) increases, corresponding to an increased proportion of shear-slip cracks observed at the macroscopic scale. These findings provide experimental insights for the safe and efficient mining of diaspore-type bauxite in coal-measure strata.