Compensation grouting is increasingly used as an active settlement control measure in shallow tunnelling in urban areas when damage potential to existing buildings is expected. This minimization of settlements is achieved by the injection of grout between the excavation and the structure to be protected. In the first stage grouting is performed for conditioning the soil in order to stiffen the ground and ensure immediate response for the actual heaving phase. This stage is finished when heave is observed at the ground surface. In the second phase grouting is done to compensate for excavation induced settlements on the basis of comprehensive measurement. The finite element model accounts for the basic effects of compensation grouting. The conditioning phase is modelled by increasing the stiffness of the zone treated by grouting. The soil displacement caused by opening fractures during the "compensation phase" is simulated by volumetric expansion of elements representing the grouting area. The model also accounts for the stiffness increase of both the grouting zone and the surrounding soil.