Humans can easily describe, imagine, and, crucially, predict a wide variety of behaviors of liquid - plashing, squirting, gushing, sloshing, soaking, dripping, draining, trickling, pooling, and pourin - espite tremendous variability in their material and dynamical properties. Here we propose and test a computational model of how people perceive and predict these liquid dynamics, based on coarse approximate simulations of fluids as collections of interacting particles. Our model is analogous to a "game engine in the head", drawing on techniques for interactive simulations (as in video games) that optimize for efficiency and natural appearance rather than physical accuracy. In two behavioral experiments, we found that the model accurately captured people's predictions about how liquids flow among complex solid obstacles, and was significantly better than two alternatives based on simple heuristics and deep neural networks. Our model was also able to explain how people's predictions varied as a function of the liquids' properties (e.g., viscosity and stickiness). Together, the model and empirical results extend the recent proposal that human physical scene understanding for the dynamics of rigid, solid objects can be supported by approximate probabilistic simulation, to the more complex and unexplored domain of fluid dynamics.