High capillary pressure has a significant effect on the phase behavior of fluid mixtures. The capillary pressure is high in unconventional reservoirs due to the small pores in the rock, so including the effect of capillary pressure on phase behavior is necessary for reliable modeling of unconventional shale gas and tight oil reservoirs. We show that the tangent plane distance method cannot be used to determine phase stability and present a rigorous thermodynamic analysis to determine phase stability with capillary pressure. We then demonstrate that there is a maximum capillary pressure (Pcmax) where capillary equilibrium is possible and derive the necessary equations to obtain this maximum capillary pressure. We also discuss the implementation of the capillary equilibrium in a general purpose compositional reservoir simulator and the numerical challenges involved with its application to unconventional reservoirs. Three simulation case studies for gas condensate and tight oil reservoirs were performed to illustrate the influence of capillary pressure on production behavior. These results clarify the influence of capillary pressure on production behavior in low-permeability reservoirs. We show that the choice of the capillary pressure function and parameters significantly affects the results.