Tunnels are commonly constructed in loess with a high water content or saturation degree, which can lead to large ground deformation, structural cracking, and even tunnel collapse during construction, in addition to tunnel leaks, sidewall settlement, and frost damage. A complete understanding of the distribution, source, and effects of groundwater in loess is therefore of critical importance, particularly to comprehensively consider loess landforms and material properties and tunnel design and construction practices. This paper presents a review and analysis of previous studies and 27 typical loess tunnels in China, which indicates three different types of water-rich loess surrounding rocks: natural water-rich loess (type I); excavation disturbance-induced water-rich loess (type II); and surface rainfall infiltration water-rich loess (type III). The formation mechanism, seepage field characteristics, and consequent stress and deformation characteristics of the surrounding rock are explained in detail. Key problems, strategies, solutions, and countermeasures are proposed as a helpful reference for theoretical research, design, construction, and maintenance of tunnel engineering in loess.