Geophysical methods can detect parameters such as the thickness, density, water content, and strength of underground rock and soil, serving as an important tool in engineering geological surveys. The transient electromagnetic method (TEM) can detect the resistivity information of subsurface media, providing a basis for solving engineering geological problems. This study first investigates the propagation characteristics of grounded-wire TEM, focusing on vertical and horizontal induced currents which are more sensitive to low-resistivity targets. Aiming at the detection of typical underground structures, this paper conducts numerical simulations of transient electromagnetic fields in underground spaces. Models of water-filled faults and fractures, water- and mud-filled fracture zones, and dry faults and fracture zones in underground roadways were designed. Numerical simulation results show that underground TEM detection can distinguish low-resistivity layers or thin layers of certain thicknesses, with a better resolution for low-resistivity layers. When the thickness of the thin layer decreases, the resolution of TEM for anomalous bodies significantly weakens, but it still retains the ability to respond to low-resistivity anomalies. Furthermore, TEM was applied to verify low-resistivity anomalous areas in a mine in Shanxi Province. Therefore, in roadway engineering construction, TEM can serve as a basis for advanced detection of hazardous water bodies.