In modern tunnel construction, complex environments with high geothermal gradients and abundant groundwater are frequently encountered. To investigate the damage and failure mechanisms of sandstone under the combined effects of temperature and water, uniaxial compression tests were conducted on sandstone at different temperatures (25 °C, 55 °C, 85 °C, and 95 °C) and soaking durations (0.5 h, 1 h, and 3 h). The acoustic emission (AE) signals and energy evolution during the damage and failure processes were analyzed, revealing the damage characteristics and failure mechanisms of sandstone. The results indicate the following: (1) As the temperature increases, under the 3 h condition, the water content of sandstone is highest at 55 °C, reaching 3.01%, and the thermal expansion effect of sandstone is not obvious. Under the conditions of 85 °C and 95 °C, the thermal expansion effect leads to a decrease in the water content, enhances the water absorption softening effect, increases the plastic deformation capacity of sandstone, and weakens its brittle failure capacity. (2) When soaked for 0.5 h and 1 h, the maximum acoustic emission ring count and maximum acoustic emission energy of sandstone increase initially, then decrease, and subsequently increase again as the temperature rises, while the cumulative acoustic emission ring count gradually increases with temperature. Under the 3 h soaking condition, the maximum ring count, maximum energy, and cumulative ring count of sandstone at all temperatures show a consistent increasing trend with temperature. (3) The increase in soaking time reduced the damage variable of sandstone, with the largest reduction of 54.17% under the 3 h condition. At different temperatures, the damage variable of sandstone was smallest at 55 °C, only 0.33. (4) Sandstone primarily experiences tensile failure under different temperatures and soaking times. The extension of soaking time promotes the development of shear cracks, while the increase in temperature can effectively promote the expansion of tensile cracks. The research results provide certain theoretical references for the damage and failure of surrounding rock in modern tunnel construction.