We develop an efficient high-order boundary-element method with the mixed-Eulerian–Lagrangian approach for the simulation of fully nonlinear three-dimensional wave–wave and wave–body interactions. For illustration, we apply this method to the study of two three-dimensional steep wave problems. (The application to wave–body interactions is addressed in an accompanying paper: Liu, Xue & Yue 2001.) In the first problem, we investigate the dynamics of three-dimensional overturning breaking waves. We obtain detailed kinematics and full quantification of three-dimensional effects upon wave plunging. Systematic simulations show that, compared to two-dimensional waves, three-dimensional waves generally break at higher surface elevations and greater maximum longitudinal accelerations, but with smaller tip velocities and less arched front faces. For the second problem, we study the generation mechanism of steep crescent waves. We show that the development of such waves is a result of three-dimensional (class II) Stokes wave instability. Starting with two-dimensional Stokes waves with small three-dimensional perturbations, we obtain direct simulations of the evolution of both L2 and L3 crescent waves. Our results compare quantitatively well with experimental measurements for all the distinct features and geometric properties of such waves.