<p>Compressed Air Energy Storage (CAES) in aquifers is a promising technology for smoothing power fluctuations and intermittency associated with renewable sources such as wind and solar power. Excess energy from renewables can be stored in the form of compressed air in subsurface aquifers and produced later to meet demand, for example, by daily cycling of wells between day-time air injection and night-time air production. One of the challenges in adopting CAES is a lack of understanding about the stability and dynamics of the air pocket in terms of its size, shape, position, and pressure evolution, and how multiphase flow mechanisms and geologic structure affect the stability. The impact of vertical segregation of layers used for air production, air injection, and water extraction on growing the initial air pocket and maintaining the final air pocket is unknown. Here, we address the question of air pocket stability by constructing multiphysics models of CAES in realistic geologic structures with flat-layered, dome-shaped, and anticlinal aquifers. We propose and simulate a novel three-stage CAES process—aquifer depletion, air pocket growth, and daily cycling—to track the evolution of air pockets around wells, including the events of merger of individual pockets and breakthrough of air and water in wells. We quantify the impact of geologic structure and air-water mobility contrast on the pressure, size, and position of the air pockets. We quantify the dynamics of the produced water volume over the three stages as a function of the structure and multiphase flow behavior. Finally, we discuss the implications of air pocket stability and produced water dynamics for CAES site selection, operational cost, and risk.</p>