Stereo digital image correlation (stereo-DIC) technique shows a powerful capacity on full-field three-dimensional (3D) deformation measurement of rotary machine structures. However, it remains a challenge for underwater applications due to difficulties in imaging, stereo calibration, light refraction, and so on. In this paper, its potential in characterizing 3D dynamic deformation of the underwater rotor blades is shown by solving these problems. A stroboscopic stereo-DIC system is established to capture clear speckle images of a blade that rotates in the windowed cavitation tunnel under different flow speeds. To calibrate the stereo camera for underwater object measurement, an improved planar pattern-based calibration method and a globally optimal relative pose estimation algorithm are proposed to calibrate the intrinsic and extrinsic parameters of the stereo-DIC system separately. In particular, a novel refractive 3D reconstruction method for underwater objects is presented to recover the true 3D shape according to flat refraction geometry, ensuring the correctness and reliability of the measured 3D displacement fields. Several experiments demonstrated that the proposed stereo-DIC system and methods are feasible and accurate. Based on this, the measured dynamic displacement fields of a propeller blade are presented and discussed. Results herald a possibility for monitoring the full-field 3D dynamic response and structural health of underwater rotating structures by the proposed technique.