In this study, combined with microseismic (MS) monitoring and numerical simulation, a novel energy-based damage model is proposed for quantitatively predicting the surrounding rock deformation for the stability analysis of underground engineering. First, the rock damage range is delineated based on MS event location and source radius. Second, seismic efficiency is introduced to calculate the actual released energy, and the total releasable energy density and total stored energy density are derived from element stress information and stress–strain curves in numerical simulation. Finally, a novel energy-based damage model with definite physical significance is developed based on the above-mentioned three forms of energy. Our new model introduces MS source parameters into the classical damage variable based on dissipated energy, accurately reflecting the qualitative relationship between them, which is highly applicable to practical engineering. Moreover, this model comprehensively reflects the damage degree variation of surrounding rocks from in-situ stress state to different excavation stages and describes real-time deterioration of rock mechanical parameters. In addition, a new approach based on seismology formulation is applied to solve seismic efficiency, without requiring reference to the destruction situation. To validate our proposed model, a three-dimensional (3D) numerical simulation embedding the damage model is conducted to investigate the surrounding rock deformation behavior of underground caverns in the Lianghekou hydropower station. A reasonable consistency is observed between the simulated displacement field and source parameters distribution obtained from MS monitoring and field failure. Furthermore, compared to the original model without a damage variable, the energy-based damage model greatly improves the deformation prediction precision.