We consider a fully implicit formulation for two-phase flow in a porous medium with capillarity, gravity, and compressibility in three dimensions. The method is implicit in time and uses the multiscale mortar mixed finite element method for a spatial discretization in a nonoverlapping domain decomposition context. The interface conditions between subdomains are enforced in terms of Lagrange multiplier variables defined on a mortar space. The novel approach in this work is to linearize the coupled system of subdomain and mortar variables simultaneously to form a global Jacobian. This algorithm is shown to be more efficient and robust compared to previous algorithms that relied on two separate nested linearizations of subdomain and interface variables. We also examine various upwinding methods for accurate integration of phase mobility terms near subdomain interfaces. Numerical tests illustrate the computational benefits of this scheme.