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Abstract We propose a new approach for performing drained and undrained loading of elastoplastic geomaterials over large deformations using smoothed particle hydrodynamics (SPH), a meshfree continuum particle method, combined with the modified Cam Clay (MCC) model of critical state soil mechanics. The numerical approach draws upon a novel one‐particle two‐phase penalty‐method based formulation for handling undrained loading in saturated soils, which allows tracking of the buildup of pore‐water pressures under combined shearing and compression. Large‐scale parallelized simulations are employed to accommodate a significant number of degrees of freedom in a three‐dimensional setting. After verification and benchmark testing, the SPH based formulation is used to analyze the propagation of reverse faults through fluid‐saturated clay deposits and the rupture of strike‐slip faults across earthen embankments. The computational methodology tests the robustness of the meshfree approach in situations where the soil tends to dilate on the ‘dry’ side of the critical state line and to compact on the ‘wet’ side, but cannot, because of the incompressibility constraint imposed by undrained loading. Our results extend the current understanding of fault rupture modeling and further demonstrate the potential of our framework together with the SPH method for large deformation analyses of complex problems in geotechnics.