This dissertation describes the wave particles technique for simulating water surface waves and two way fluid-object interactions for real-time applications, such as video games. Water exists in various different forms in our environment and it is important to develop necessary technologies to be able to incorporate all these forms in real-time virtual environments. Handling the behavior of large bodies of water, such as an ocean, lake, or pool, has been computationally expensive with traditional techniques even for offline graphics applications, because of the high resolution requirements of these simulations. A significant portion of water behavior for large bodies of water is the surface wave phenomenon. This dissertation discusses how water surface waves can be simulated efficiently and effectively at real-time frame rates using a simple particle system that we call "wave particles." This approach offers a simple, fast, and unconditionally stable solution to wave simulation. Unlike traditional techniques that try to simulate the water body (or its surface) as a whole with numerical techniques, wave particles merely track the deviations of the surface due to waves forming an analytical solution. This allows simulation of seemingly infinite water surfaces, like an open ocean. Both the theory and implementation of wave particles are discussed in great detail. Two-way interactions of floating objects with water is explained, including generation of waves due to object interaction and proper simulation of the effect of water on the object motion. Timing studies show that the method is scalable, allowing simulation of wave interaction with several hundreds of objects at real-time rates.