The concept of perfectly matched layer (PML) has been proven very effective in absorbing electromagnetic waves in lossless media. An extension of this method and a complete three-dimensional (3-D) scheme properly suited for finite-difference, time-domain (FDTD) modeling of acoustic propagation and scattering in unbounded problems are presented in this paper. This generalized PML is constructed in such a way that it performs significant absorption of traveling waves in acoustics for both lossless and lossy media. Theoretically, no reflections occur when propagating waves encounter the lossy medium-PML interface, no matter what the angle of incidence is, introducing at the same time the possibility for further wave attenuation via the stretched coordinates idea. Numerical results support the suggested PML theory as well as reveal the proper modifications, which lead to the achievement of the optimum absorbing-boundary condition.