This paper investigates the lubrication and dynamic characteristics of water-lubricated stern bearing (WSB) under service conditions. A test scheme of bearing film pressure distribution and spatial shaft position is proposed. The experiment reveals the pressure bias and bidirectional shaft inclination phenomenon of full-size WSB, according to which the transient fluid-solid coupling dynamic model of the bearing is established, considering bidirectional shaft inclination and lining deformation. The calculation method of 16 dynamic coefficients is proposed. Influences of eccentricity ratio, shaft inclination angle, and bearing structure parameters on lubrication and dynamic characteristics are explored systematically. Results indicate that the rotating shaft produces apparent horizontal deflection during the working condition of low speed and heavy load. Under the existence of attitude angle, the horizontal and vertical shaft inclinations both affect the film thickness and pressure distribution, especially at low eccentricity ratio, the horizontal shaft inclination has a greater impact on the bearing. As the length to diameter ratio increases or as the clearance ratio decreases, the effect of vertical shaft inclination on lubrication and dynamic characteristics of the bearing decreases, and that of horizontal shaft inclination increases. Research results are instructive for further study on the effect of misalignment on the structural design and optimization for such bearings.