In this paper, the scaled boundary finite-element method (SBFEM) proposed for interaction of wave and circular cylinder [Tao et al, 2007] is modified and applied to wave diffraction by a vertical square caisson. By introducing a virtual circular cylinder surrounding the square caisson, the whole fluid domain is divided into one unbounded subdomain and four bounded subdomins. The corresponding boundary value problems in bounded and unbounded domains are solved by the SBFEM using different base solutions. Comparisons to the previous BEM solutions demonstrate the excellent computation accuracy and efficiency of the present SBFEM approach, as well as the benefit of not suffering from the difficulties of irregular frequency and singularity problems, which are often encountered by BEM. The method can be extended to solve more complex wave-structure interaction problems resulting in direct engineering applications.