This research presents a numerical investigation of two-phase flow during the expulsion of entrapped air in a non-confined pipe. A modified version of the volume of fluid (VOF) approach is employed considering the effect of compressibility in the liquid. A modification is introduced to the original approach relating the density changes in the liquid to the pressure changes using the fluid bulk modulus. The bulk modulus is also modified to consider the pipe elasticity, the air bubble entrainment and the two-phase flow regime in a pipe. Fluid–structure interaction (FSI) code is developed and used to calculate the motion of the downstream orifice wall during the impact of the water column on the pipe end wall. The numerical results of the pressure variation agree well with experimental data. The two-phase flow structure and physics behind the pressure waves are investigated. The numerical results show that to capture the amplitude and time interval of the pressure surges, the effect of FSI should be considered during the expulsion of the entrapped air. Additionally, the effects of initial air pocket size, supply pressure and orifice size on the pressure increase are investigated. The developed VOF-FSI approach can be employed as a numerical tool to investigate the transient flow during pipe filling.