Abstract: Zoige Peatland has important functions of water storage, carbon sequestration, and ecology. The rising or reducing of groundwater level determines the expanding or shrinking of wetland area, but the changes of groundwater hydrological process and dynamic water budget in peatland are still lack of field monitoring and studies. In combination with the meteorological data at the Hongyuan station, field in situ monitoring has been conducted in May, July, and September 2017 in a typical small watershed in the peatland of the upper Black River in Zoige Plateau. Based on the MODFLOW model, a three-dimensional dynamic groundwater movement model in this small watershed was established to simulate the groundwater movement process, and calculate the dynamic water budget and gully drainage capacity. Results demonstrated that the daily precipitation is the dominant source of groundwater recharge, accounting for 60% of the total recharge volume. Gully drainage is responsible for the main outflow of the peatland, i. e., the highest proportion of gully drainage is up to 53%, and the proportion of the evaporation loss, 26%. The drainage capacity under the condition of gullies cutting through peat layer is roughly 2.5 times higher than that non-cutting through peat layer. The groundwater level in Zoige Peatland is seasonally fluctuated by rainfall, which is rising by about 0.5 m in the rainy season.