Alley cropping system may influence water movement and balance owing to its complex interactions between crop and tree rooting systems as well as spatial variation of landscapes and characteristic of soil hydraulics. The objective of this study is to analyze the temporal and spatial variations of soil water regime, to quantify two dimensional water fluxes and directions and to evaluate water use in one alley cropping system, consisting of Choerospondias axillaris and peanut (Arachis hypogaea) in subtropical China. A multi-layered water balance model, with water movement between layers along soil water potential was applied. The test period was from March 1999 to December 2002 in fifteen experimental plots. The result showed Choerospondias axillaris could utilize soil water in deep soil (50-100 cm depth) and alleviate the seasonal drought. The direction of soil water movement indicated that soil water moved to hedgerow of Choerospondias axillaris, which indicated that Choerospondias axillaris also competed with peanut for water in the tested alley cropping systems especially in seasonal drought. Water competition was related to the tree spacing and tree age. The alley cropping system increased 5%-12% of evapotranspiration, decreased net drainage and water storage, and decreased 50%-60% of runoff after cultivation of peanut. The alley cropping system can change soil water balance and water use patterns, which is needed to be considered in the ecological construction.