Argillization is commonly observed as excavating in mudstone stratum by tunnel boring machine. In addition to the operational and geological parameters studied by previous researchers, this phenomenon also has significant influence on the performance of tunnel boring machine, such as penetrate rate, advance rate, and utilization rate. In general, water is a key factor affecting the progress of argillization. With the aim to investigate the effect of water content on argillization of mudstone during the tunnelling, a new rolling abrasion test was conducted on rock blocks with moisture contents of 2.82%, 3.44%, 4.79%, 6.06%, and 6.75%. In the experiment, penetration depth, temperature fields of disc cutter and rock blocks, and wear loss of cutters were recorded. In addition, the microstructures of cutting groove on rock blocks and slacking mudstone were observed by OLYMPUS SZX16 stereomicroscope. According to experimental results, three stages of argillization process can be divided: (1) water evaporation of mudstone nearby the disc cutter, (2) destruction of microstructure of mudstone, and (3) formation of slaking mudstone. Uneven shrink, water-weakening effects, temperature effects, and mechanical activation are mainly contributed to the damage of microstructures of rock blocks. In addition, the variation in water content accelerates the argillization process. By comparison, it is found that wear loss of disc cutter and cutting efficiency show negative and positive correlation with the extent of argillization, respectively. However, flat wear appears due to the argillization. Therefore, in engineering practice, to obtain high work efficiency of tunnel boring machine, it is necessary to keep water content of clay-bearing rock in a reasonable range. This study reveals the argillization process and abnormal cutter wear mechanism from the microstructure’s perspective. In addition, the effects of temperature, water, and mechanical motion are simultaneously taken into consideration. The present study provides some references for reasonably improving tunnel boring machine performance in the tunnel construction.