Installation of stone columns is a widely adopted ground improvement technique that mainly involves three basic mechanisms: densification, reinforcement, and drainage. This study investigates the individual and combined effects of reinforcement and drainage mechanisms in clay material. A fully drained consolidation analysis was conducted using finite element software PLAXIS 3D, adopting four different scenarios at different effective pressures. The four cases considered in the study were: consolidation analysis on clay without any improvement; the combined influence of the reinforcement and drainage mechanisms by considering higher stiffness and permeability of the column for simulating the behavior of stone columns (SCs); increased column permeability to simulate the drainage effects similar to prefabricated vertical drains (without any stiffness improvement); increased column stiffness, and retaining the same permeability (to bring out the effect similar to high modulus columns). Prior to commencing the four cases, the numerical model is validated against the results obtained from the laboratory one-dimensional consolidation test performed on a 100 mm diameter and 40 mm height sample. The influence of drainage and reinforcement mechanisms on the time rate of settlement, pore water pressure dissipation, stress concentration ratio (SCR), and settlement reduction ratio were studied. The observations revealed that stiffness and permeability influence the settlement rate and transient pore water pressure dissipation. However, the improvement in ultimate settlement, SCR (2.5 to 5 times increase), and settlement reduction ratio (80–90% reduction) were primarily influenced by the increased stiffness of the column.