The gas and water flows during an underwater missile launch are numerically studied. For the gas flow, the explicit difference scheme of Non-oscillation and Non-free-parameter Dissipation (NND) is utilized to solve the Euler equations for compressible fluids in the body-fitted coordinates. For the water flow, the Hess-Smith method is employed to solve the Laplace equation for the velocity potential of irrotational water flows based on the potential theory and the boundary element method. The hybrid Eulerian-Lagrangian formulation for the free boundary conditions is used to compute the changes of the free surface of the exhausted gas bubble in time stepping. On the free surface of the exhausted gas bubble, the matched conditions of both the normal velocities and pressures are satisfied. From the numerical simulation, it is found that the exhausted gas bubble grows more rapidly in the axial direction than in the radial direction and the bubble will shrink at its neck finally. Numerical results of the movement of the shock wave and the distribution of the Mach number and the gas pressure within the bubble were presented, which reveals that at some time, the gas flow in the Laval nozzle is subsonic and the gas pressure in the nozzle is very high. Influences of various initial missile velocities and chamber total pressures and water depths on both the time interval when the gas flow in the nozzle is subsonic and the peak of the gas pressure at the nozzle end were discussed. It was suggested that a reasonable adjustment of the chamber total pressure can improve the performance of the engine during the underwater launch of missiles.