The water content is an important factor affecting the mechanical properties and crack development of rock. To further study the effect of water content on the mechanical properties and microcrack development of mudstone, acoustic emission (AE) tests under uniaxial compression were conducted on mudstone samples with water contents of 0, 1.14, 2.16, 4.50, 9.05, and 15.63%. The experimental results indicate that with increasing water content, the compressive strength and elastic modulus of mudstone decrease exponentially, and Poisson's ratio increases linearly. Besides, the failure mode of mudstone changes from tensile failure to shear failure with increasing water content. Based on the crack volumetric strain method combined with the cumulative AE hits analysis, the thresholds of crack closure, crack initiation and crack damage stress were identified, and the failure process was characterized by five stages of crack propagation. The relationship between the cracking stages and AE signals of mudstone samples with different water contents was analyzed. Crack damage starts at more than 0.85 times the uniaxial compressive strength. Crack initiation and crack closure start at 0.5-0.8 times and 0.4-0.6 times the uniaxial compressive strength, respectively. Furthermore, the results obtained by scanning electron microscope (SEM) demonstrate that the intrusion of water results in changes in the cementation and compaction of mudstone, which further causes degradation of the mechanical properties of mudstone. An equation to predict the strength and crack evolution stages of mudstone is established. The obtained results not only provide a theoretical basis for the influence of water content on the mechanical properties of mudstone but also have guiding significance for the study on microcrack evolution in mudstone.