Hydro-mechanical coupling triaxial tests and acoustic emission monitoring experiments are performed on a sandstone, and the stress-strain relationship and acoustic emission (AE) data of sandstone are obtained under hydro-mechanical coupling conditions. Based on the experimental conditions and results, a HM coupling biaxial model is developed using the 2-dimensional particle flow code (PFC2D) to study the AE characteristics and energy dissipation of sandstone. By its very definition, the incremental dissipation energy can be effectively used to interpret the evolution of AE characteristics. AE source can be traced according to micro cracks, and then the spatial distribution of AE signals and the types of the micro cracks are determined. The results show that: 1) The average contact force between particles is weakened by the dragging force induced by pore water pressure so that the overall strength of sandstone is reduced. 2) The pore water pressure variation reflects the repeated “storage and depletion” nature of the elastic strain energy, which leads to the relatively scattering of AE energy and stress fluctuation after its peak value. 3) The existence of the osmotic pressure promotes the dissipation efficiency of the total input energy, while lessening the total input energy and elastic strain energy. It is necessary to consider the total input energy (elastic strain energy) and dissipation efficiency in determining the total dissipation energy. 4) Crack distribution shows a possible occurrence of an associated crack zone, which is at a certain angel to the main shear zone. Influenced by the hydraulic gradient, the cracks become denser in inlet for water than outlet. 5) The ratio of the tensile crack number to the shear crack number increases sharply at the peak stress then tends to be constant afterwards.