The invention provides a dynamic simulation system and method of small current grounding systems in a power grid. The dynamic simulation system comprises a load simulation unit, a distributed power supply accessing unit, a power transmission line and feeder line simulation unit, a grounding capacitance simulation unit, a grounding fault simulation unit, a power grid simulation unit, a grounding mode simulation unit and a main transformer simulation unit. The load simulation unit and the distributed power supply accessing unit are connected with the main transformer simulation unit through the power transmission line and feeder line simulation unit, the grounding capacitance simulation unit and the grounding fault simulation unit are both arranged on the power transmission line and feeder line simulation unit, and the power grid simulation unit and the grounding mode simulation unit are connected with the main transformer simulation unit. The dynamic simulation system simulates the small current grounding systems of different grounding modes in the low-voltage power grid to research operating characteristics and fault features of the small current grounding systems, is constructed conveniently and flexibly, and can be used for researching the fault features and protective adaptability of the small current grounding systems with a distributed power supply accessed into or without the distributed power supply accessed into.