Carbonate rocks have a diversity of uses, including engineering construction (e.g., road/railway base, building stone), environmental applications (carbon dioxide sequestration, nuclear waste disposal) and energy extraction and storage (hydrocarbon and geothermal operations). Before planning and operating energy and civil engineering applications, it is crucial to obtain an understanding of the mechanical properties, the criterion and evolution of failure and the resultant permeability evolution of carbonate rocks under various geological and engineering loads. This doctoral thesis presents a comprehensive experimental investigation into the dynamic evolution of deformation bands, their nucleation and propagation in highly porous carbonates and their impact on permeability evolution. Mt Gambier limestone - a fossil-rich, highly porous carbonate rock - is the main subject of this study. Two different sizes of the specimens were tested under various loading conditions representing in situ geological scenarios. A newly built in-situ X-ray transparent cell has been used to provide a microscopic perspective of the dynamic evolution through time-lapse triaxial compression experiments. These analyses were supplemented by macroscopic observations using standard triaxial compression experiments on larger samples. The transition of failure modes was examined by testing the sample response under various confining pressures to determine the critical parameters for nucleation of compaction bands. Using advanced imaging techniques (e.g., X-ray tomography, 2D digital image correlation and 3D digital volume correlation), the nucleation of the compaction bands was shown to be highly affected by local heterogeneity. The growth of the thickness of compaction bands shows a simple linear relationship with axial strain. A special emphasis for reservoir application is an understanding of the permeability evolution during the formation of compaction bands. This was analysed using qualitative and quantitative methods, X-ray CT based, micro-structurally enriched continuum models and fractal analysis. Experiments performed under dry conditions at room temperature, as well as inert gas (Helium) and fluid (purified Kerosene) saturated samples at temperatures ranging from 25 °C to 80 °C were performed to investigate the effect of coupled thermal-hydro-mechanical-chemical (THMC) processes on formation of compaction bands. The analysis found that a moderate temperature rise can result in a drastic transition of deformation mode from dominantly ductile diffuse band growth at a lower temperature to prevailing brittle growth at a higher temperature. This unusual material behaviour has been proposed to be due to a transition in nucleation mechanism from rate-sensitive creep process-controlled at low temperature to ideal plastic pore collapse at high temperature. In order to evaluate the critical factors controlling the nucleation and dynamic evolution of compaction bands, a series of artificial materials were tested using a digital imaging assisted experimental setup. It was found that not all porous materials formed discrete compaction bands, and the nucleation of bands was restricted to granular and porous solid materials that show a competition between local processes. Compaction bands were found to nucleate only when the competing processes of collapsing macro-pores and the microporous skeleton deformation triggered incompatibilities with the large-scale force equilibrium condition.