Faults can act as preferential pathways for fluid migration during geological CO₂ sequestration, potentially compromising storage integrity. Understanding flow and deformation behavior around faults during fluid injection is therefore critical. We conducted stepwise water injection tests (50–150 L/min) into a faulted limestone formation at approximately 120 m depth at the Otway International Test Centre. The injection well’s screen interval was 98–110 m depth. Distributed fiber-optic sensors installed in two observation wells recorded depth-distributed strain responses during injection. Near-injection depths exhibited rapid and large strains, while shallower layers showed alternating patterns of high and near-zero strain, suggesting complex subsurface flow behavior. Coupled flow–deformation simulations using a model with depth-variable permeability were performed to interpret the observations. Reproducing the observed strain distribution required assigning high permeability to the fault zone. Although it remains uncertain whether the fault itself or another high-permeability pathway dominated flow, the model indicates enhanced fluid migration into shallow layers is essential to explain the measured strains. These results suggest that vertically distributed strain monitoring can constrain subsurface flow models and identify fluid pathways in heterogeneous formations. The integration of distributed strain measurements with coupled flow–deformation simulation provides a promising framework for real-time monitoring and early detection of leakage during CO₂ sequestration, supporting safer and more effective storage operations.