Reservoir capacity is a key index of water resource in the area of reservoir and it is a crucial parameter to design and operate a water control project. In traditional reservoir capacity calculation, a planimeter is used to obtain a reservoir capacity from topographic maps and large scale topographic maps are needed if high accuracy is required. In this paper, a reservoir capacity calculation approach based on grid DEM is proposed. The data organization and interpolation accuracy of DEM are analyzed. In comparison with traditional and DEM based reservoir capacity calculation methods, advantages and disadvantages of each method are discussed. Taking Three Gorges Project as example, a self design software of reservoir capacity calculation is developed and compared with commercial software, Erdas and Arcinfo. Experimental results approve that reservoir capacity calculation approach based on grid DEM has characteristics of high accuracy, fast computation speed and widespread application.