Abstract: Gully erosion is not only the process of sediment transportation but also the evolution and development of the landscape. To explain temporal and spatial variation of gully morphology, based on the equations of mass conservation and theoretical analysis method, principles and process of establishment of models illustrating the gully erosion and morphological development were discussed, furthermore, differential equation of sediment transportation due to gully erosion and equation of gully incision were established to simulate gully erosion. The simulation were conducted and verified during rainfall processes. Compared with measured data of hillyslope-gully system, model simulating gully erosion shows a high precision with error less than 15%. It means that the equations of gully incision and sediment transportation can be used in the simulation of gully formation.