Three-stage method is a commonly used method for assessing the risk of building damage caused by tunnel undercrossing. This study improves the three-stage method by introducing building vulnerability as the basis for determining whether a building requires detailed damage assessment, and proposes to assess the vulnerability level of a building by the existing damage degree of the building and the physical characteristics of the building. In addition, this study suggests that in the third stage detailed assessment of building damage, multiple control indicators are selected according to the building deformation characteristics to assess the risk of tunnel undercrossing building from multiple angles to improve the accuracy of risk assessment. The improved three-stage method is applied to a tunnel underpass construction project as a case study, and the analysis result illustrates that the proposed method can accurately assess the risk of tunnel underpass construction.