With continuing demands on increasing die size and device density, underfills are widely used in flip-chip and ball-grid array packages for improvement of reliability. Fracture of the underfill/die interfaces is often observed, particularly at the die corners under a humid environment, raising serious reliability concerns. Moisture uptake can also increase the dielectric constant of underfill materials to degrade the electrical performance of the packages. In this paper, we investigated the diffusion kinetics of moisture and its effects on the fracture energy and effective dielectric constant for two underfill materials. The moisture transport kinetics was studied by a TGA weight loss method and a capacitance measurement method. Based on these results together with diffusion modeling, Arrhenius type relations for moisture diffusion constant and moisture concentration ratio were determined. The interfacial fracture energy of underfills sandwiched by SiN-deposited Si-substrate was measured under various humidity conditions using a double cantilever beam (DCB) method. The crack driving force was systematically reduced by more than 40% as the moisture content increased to saturation in the samples. The locus of failure was cohesive inside underfill materials. Sample preparation technique comprising narrower underfill layer than Si-substrate reduced the incidents of premature failure during testing. Finally, the moisture effect on the increase of dielectric constant was determined using capacitance measurement methods. The dielectric relaxation factor per unit moisture content is reported for the two underfills.