Abstract: In recent years, most large-scale hydropower projects in China have been constructed in the high mountain canyon areas of southwest China, characterized by significant elevation differences, intense unloading effects, and high geostress conditions, leading to frequent surrounding rock deformation and failure issues in underground caverns. In response to this issue, this paper takes the diversion tunnel of RM Hydropower Station currently under construction on Lancang River as an example, and combines construction geological data and experimental test results to systematically analyse the basic characteristics and patterns of deformation and failure of the surrounding rock in the diversion tunnel. Using numerical simulation methods, the deformation of surrounding rock, stress evolution, and distribution characteristics of plastic zones during layered excavation are thoroughly investigated, providing an in-depth analysis of the deformation and failure mechanisms of surrounding rock under excavation unloading. The research results show that: the deformation and failure of the surrounding rock in the diversion tunnel are mainly concentrated in the arch shoulder area on the river side, which is the result of the combined effects of structural planes and high geostress. During layered excavation, there is a significant stress concentration phenomenon in the arch shoulder surrounding rock, with a maximum principal stress of approximately 70 MPa, a failure depth of less than 50 cm, and a failure zone characterised by a “large area and shallow depth”. This study provides important theoretical basis and technical support for the excavation and support design of the deep-buried large underground powerhouse of the RM Hydropower Station.