Abstract: Xinmeng River dredging and extending project is one of the important drainage projects approved by the State Council. Its main task is to cleave a second channel in upstream Xinmeng River for the water diversion from Yangtze River to Taihu Lake, which will improve the flow condition of west coast and north-west area of Taihu Lake, but generate negative effects on the water environment of Yangtze River. A two-dimensional flow-pollutant simulation model was established based on MIKE21 to analyze the impact of the drainage project on water environment of Yangtze River and downstream waterworks. The result shows that the adverse effect mainly concentrates in the estuary of Xinmeng River and the impact is slight in general. However, the water quality still can not meet the requirements of Comprehensive Management Plan of Water Environment in Taihu Lake Basin after the project. Thus, it is advisable to mitigate the impact of the drainage project on the estuary region by strengthening local pollution control.