A three-dimensional boundary-integral algorithm for interacting deformable drops in Stokes flow is developed. The algorithm is applicable to very large deformations and extreme cases, including cusped interfaces and drops closely approaching breakup. A new, curvatureless boundary-integral formulation is used, containing only the normal vectors, which are usually much less sensitive than is the curvature to discretization errors. A proper regularization makes the method applicable to small surface separations and arbitrary λ, where λ is the ratio of the viscosities of the drop and medium. The curvatureless form eliminates the difficulty with the concentrated capillary force inherent in two-dimensional cusps and allows simulation of three-dimensional drop/bubble motions with point and line singularities, while the conventional form can only handle point singularities. A combination of the curvatureless form and a special, passive technique for adaptive mesh stabilization allows three-dimensional simulations for high aspect ratio drops closely approaching breakup, using highly stretched triangulations with fixed topology. The code is applied to study relative motion of two bubbles or drops under gravity for moderately high Bond numbers B, when cusping and breakup are typical. The deformation-induced capture efficiency of bubbles and low-viscosity drops is calculated and found to be in reasonable agreement with available experiments of Manga & Stone (1993, 1995b). Three-dimensional breakup of the smaller drop due to the interaction with a larger one for λ = O(1) is also considered, and the algorithm is shown to accurately simulate both the primary breakup moment and the volume partition by extrapolation for moderately supercritical conditions. Calculations of the breakup efficiency suggest that breakup due to interactions is significant in a sedimenting emulsion with narrow size distribution at λ = O(1) and B ≥ 5-10. A combined capture and breakup phenomenon, when the smaller drop starts breaking without being released from the dimple formed on the larger one, is also observed in the simulations. A general classification of possible modes of two-drop interactions for λ = O(1) is made.