Propagation of fractures, especially those emanating from wellbores and closed natural fractures, often involves Mode I and Mode II, and at times Mode III, posing significant challenges to its numerical simulation. When an embedded inclined fracture is subjected to compression, the fracture edge is constrained by the surrounding materials so that its true propagation pattern cannot be simulated by 2D models. In this article, a virtual multidimensional internal bond (VMIB) model is presented to simulate three-dimensional (3D) fracture propagation. The VMIB model bridges the processes of macro fracture and micro bond rupture. The macro 3D constitutive relation in VMIB is derived from the 1D bond in the micro scale and is implemented in a 3D finite element method. To represent the contact and friction between fracture surfaces, a 3D element partition method is employed. The model is applied to simulate fracture propagation and coalescence in typical laboratory experiments and is used to analyze the propagation of an embedded fracture. Simulation results for single and multiple fractures illustrate 3D features of the tensile and compressive fracture propagation, especially the propagation of a Mode III fracture. The results match well with the experimental observation, suggesting that the presented method can capture the main features of 3D fracture propagation and coalescence. Moreover, by developing an algorithm for applying pressure on the fracture surfaces, propagation of a natural fracture is also simulated. The result illustrates an interesting and important phenomenon of Mode III fracture propagation, namely the fracture front segmentation. Copyright © 2012 John Wiley & Sons, Ltd.