The invention discloses a water circulation system, which comprises a collection tank (4), a clear water reservoir (6), a high water tower (7) and a filter plant (1). The collection tank (4) supplies water to the clear water reservoir (6) through a heavy filter (5); the clear water reservoir (6) is connected to the high water tower (7) through a water tower pipe section and is connected to a production water pipe network joint (11) through a production water pipe; the high water tower (7) is connected to the filter plant (1) through a filtering water pipe; and a connecting steel pipe (8) is connected between the filtering water pipe and the production water pipe and is used for conveying water conveyed to the production water pipe network to the filter plant (1), wherein a connecting valve is arranged on the connecting steel pipe; a filtering valve is arranged on the filtering water pipe; and a pipe network valve is arranged on the production water pipe. The invention also discloses a water circulation method adopting the system. By newly arranging pipe sections, the former single supply mode is changed into a double-supply mode, the requirement for production water is fully met, and the system and the technology exactly contribute to environmental protection, energy conservation, consumption reduction, convenience, rapidness and potent assurance.