A time accurate and stable finite-difference method for gas-liquid two-phase flows was presented and applied to several unsteady cavitating flow problems. In this method, the artificial dissipation terms in the upwinding process of advection terms were constructed by using the preconditioning matrix [1] to enhance the stability and accurate treatment of gas-liquid two-phase flows with both compressible and incompressible characteristic at arbitrary void fractions. A homogeneous equilibrium gas-liquid two-phase flow model [2] and a stable 4-stage Runge-Kutta method as well as Roe-type flux splitting method [3] with the 3rd order MUSCL TVD scheme were employed. As numerical examples, several gas-liquid two-phase flows such as unsteady cavitating flows around a hydrofoil, shock-cavitation bubble interaction problem and two-phase shock tube problem with arbitrary void fractions and Mach numbers were computed, and checked the applicability and stability of the proposed method to the unsteady problem. From the results, it showed a good prediction and simulation for the unsteady phenomena of cavitation bubble collapse and the shock wave, including the propagation of both compression and expansion waves. The effect of applying the preconditioning matrix to the upwinding was confirmed. Detailed observations of the behavior of shock and expansion wave in the gas-liquid two-phase media and comparisons of predicted results with exact solutions are provided and discussed. [1] J.M. Weiss and W.A. Smith. Preconditioning Applied to Variable and Constant Density Flows. Proc. of 25th AIAA Fluid Dyn. Conf., AIAA Paper 94-2209, pp. 1–12, 1994. [2] B.R. Shin, Y. Iwata and T. Ikohagi, A Numerical Study of Unsteady Cavitating Flows using a Homogenous Equilibrium Model, Computational Mechanics, 30:388–395, 2003. [3] P.L. Roe, Approximate Riemann Solvers, Parameter Vectors, and Difference Scheme, Journal of Computational Physics, 43(2):357–372, 1981.