In this study, the dynamic response and instability of a low-permeability deformable caisson-type quay wall (CQW) with backfill soil exposed to standing waves is evaluated. The focus is on the dynamic response and instantaneous liquefaction of seabed and backfill around the CQW. This study aims at closing the knowledge gap about the wave-induced CQW–seabed response without the presence of a breakwater, as the bulk of the prior research has been done on CQWs considering earthquakes as the primary loading source. Finite elements are used, and numerical results are obtained in terms of displacements, pore-pressure and shear stress variations in temporal and spatial domains. Wave-induced instantaneous liquefaction is analysed, and analyses are performed to determine the effect of soil/wave properties on dynamic response and liquefaction. Results indicate that there is considerable liquefaction potential in both seabed and backfill that may play a key role in the stability of the CQW. While such a response is dependent upon the induced wave energy and the CQW motion, seabed parameters alter the instantaneous liquefaction occurrence as well. A slight decrease in the seabed degree of saturation causes a contraction behaviour under the wave-induced motion of the CQW, which, in turn, affects the mechanism of response and the initiation of instability in the seabed.