With the improvement of hydraulic fracturing techniques, more challenging and longer wells are developed and narrow fracture environments are created. The proppant may deposit in the fracture as thin layers and even monolayers. Especially when the fracture was exposed to fracturing fluids, the softened fracture surface can cause severe proppant embedment, which reduces the fracture conductivity significantly. In this study, laboratory experiments were first designed to investigate the effect of rock-fluid interaction on the proppant embedment and fracture conductivity. The fracture conductivity cell experiments were conducted using Berea sandstone and Eagle Ford shale samples, which were exposed to fracturing fluids for 1 day and 21 days. A numerical modeling approach combining continuum mechanics code, DEM code, and LBM was developed to advance the understanding of the fracture conductivity at different closure pressures. The continuum mechanics code (e.g., FLAC3D) was employed to compute proppant embedment and DEM code (e.g., PFC3D) was used to calculate the proppant compaction, rearrangement, and particle crushing. LBM simulation was performed on the evolved proppant pack to compute the time-dependent permeability of the proppant pack. The simulation results demonstrated a strong correlation between proppant embedment and rock mechanical properties. When the Young’s modulus of the rock plate is less than 5 GPa, large magnitudes of proppant embedment can be expected in fractures supported by monolayers of ceramic proppant particles. Moreover, large-size proppant particles are more sensitive to the variations of Young’s modulus change in the rock plate. When the rock formation in a narrow fracture environment has a relatively high Young’s modulus, the proppant diameter distribution has a lesser effect on the fracture conductivity. The outcome of this study will provide insights into the role of reservoir rock characteristics, proppant properties, and closure pressure on proppant embedment in narrow fractures. The simulated fracture/proppant system can demonstrate more realistic interactions between proppants, hydraulic fractures, and closure pressures. The proposed numerical workflow provides a more efficient and economical way for proppant parameter selections.