A coalescing filter element provides an integrated filter element with a three stage design with a hydrophobic or hydrophilic coalescing layer. A coalescing filter element comprises: a) At least one particulate filtration layer; b) A coalescing layer promoting coalescing of water particles, wherein the coalescing layer is downstream of the at least one particulate filtration layer relative to the flow of fluid through the element; c) An annular coalescing space downstream of the coalescing layer; d) A sump in a lower portion of the filter element in fluid communication with the annular coalescing space; and e) A hydrophobic layer downstream of the annular coalescing space, wherein fluid being cleaned by the element flows through the hydrophobic layer. The coalescing layer may be a hydrophobic or a hydrophilic coalescing layer. A filter assembly will include the coalescing filter element of the present invention.