In this paper we investigate the bubble collapse dynamics under shock-induced loading near soft and rigid bio-materials, during shock wave lithotripsy. A novel numerical framework was developed, that employs a Diffuse Interface Method (DIM) accounting for the interaction across fluid–solid-gas interfaces. For the resolution of the extended variety of length scales, due to the dynamic and fine interfacial structures, an Adaptive Mesh Refinement (AMR) framework for unstructured grids was incorporated. This multi-material multi-scale approach aims to reduce the numerical diffusion and preserve sharp interfaces. The presented numerical framework is validated for cases of bubble dynamics, under high and low ambient pressure ratios, shock-induced collapses, and wave transmission problems across a fluid–solid interface, against theoretical and numerical results. Three different configurations of shock-induced collapse applications near a kidney stone and soft tissue have been simulated for different stand-off distances and bubble attachment configurations. The obtained results reveal the detailed collapse dynamics, jet formation, solid deformation, rebound, primary and secondary shock wave emissions, and secondary collapse that govern the near-solid collapse and penetration mechanisms. Significant correlations of the problem configuration to the overall collapse mechanisms were found, stemming from the contact angle/attachment of the bubble and from the properties of solid material. In general, bubbles with their center closer to the kidney stone surface produce more violent collapses. For the soft tissue, the bubble movement prior to the collapse is of great importance as new structures can emerge which can trap the liquid jet into induced crevices. Finally, the tissue penetration is examined for these cases and a novel tension-driven tissue injury mechanism is elucidated, emanating from the complex interaction of the bubble/tissue interaction during the secondary collapse phase of an entrapped bubble in an induced crevice with the liquid jet.