A new model, which involves viscous and multi-phase effects, was given to study cavitating flows. A local compressible model was established by introducing a density-pressure function to account for the two-phase flow of water/vapor and the transition from one phase to the other. An algorithm for calculating variable-density N-S equations of cavitating flow problem was put forward. The present method yields reasonable results for both steady and unsteady cavitating flows in 2D and 3D cases. The numerical results of unsteady character of cavitating flows around hydrofoils coincide well with experimental data. It indicates the feasibility to apply this method to a variety of cavitating flows of practical problems.