Coal fines are generated during both the dewatering and Coal Seam Gas (CSG) production stages. This is due to the interaction between the fluid flow and the coal solids affixed to coal cleat surfaces. The generated coal fines may plug gas flow paths and reduce coal permeability. Although some investigations of the impact of water flow on coal fines generation were conducted, little research has been conducted into the generation of coal fines under water-gas two-phase flow condition. This is a typical flow type in the late dewatering and early CSG production phases. Two-phase flow requires higher pressure to initiate the fluid movement. Therefore, coal fines generation in two-phase flow conditions is expected to be very different from that in single-phase flow. In this work, a fully coupled numerical model was developed, which integrated different flow regimes and the generation of coal fines. Coal cleat geometries were constructed using the Scanning Electron Microscopy (SEM) images taken from a set of coal samples collected from the Bowen Basin, Australia. The two-phase flow was simulated based on the Phase Field Method (PFM). Different flow regimes were examined, including water flow, gas flow, gas-drive-water and water-drive-gas scenarios. The coal fines generation was evaluated according to the combination of shear and tensile failure criteria. The simulation results revealed that more coal fines were generated in two-phase flow compared to single-phase flow. The majority of coal fines were generated around the regions where residual phase was observed. This was attributed to the substantial force induced by significant pressure difference between the residual fluid and mobile fluid. Among different flow regimes, the gas-wet gas-drive-water scenario generated the greatest amount of coal fines, with over one order of magnitude more than any other scenarios. It was observed that the change of fluid phase composition inside the cleat created considerable pressure fluctuations (up to several kPa), which was unfavourable in controlling the production of coal fines. Based on the dimensional analysis, two dimensionless numbers, namely Capillary number (Ca) and Euler number (Eu) were found to define the coal fines generation process. A new criterion that could be used to evaluate coal fines generation was obtained. The findings from this study deliver a comprehensive knowledge of coal fines generation under different flow regimes, which provides useful guideline as to how to implement effective mitigation strategies to minimize coal fines induced production delays.