The invention provides a pumped storage power station grid-connected indication circuit and a failure detection method. The indication circuit comprises a unit outlet switch position joint, five commutation disconnector position joints, ten relays and four indicator lights with different colors, wherein the unit outlet switch position joint is electrically connected with a unit outlet switch; the five commutation disconnector position joints are respectively and electrically connected with a three-phase five-level commutation disconnector; according to the unit outlet switch position joint and the five commutation disconnector position joints, the unit outlet switch and the three-phase five-level commutation disconnector are led out and connected in series with an indicator light circuit in a grid-connected manner by virtue of the relays; the indicator lights are used for indicating power generation working conditions and pumping working conditions. The failure detection method comprises the following steps: operating the unit outlet switch and the commutation disconnector, observing whether the indicator lights are lighted, and performing failure determination. The unit operating conditions are conveniently and accurately distinguished, the operating conditions of the unit outlet switch, the commutation disconnector and each relay can be determined by virtue of the indicator lights, equipment failure is timely discovered, and the working efficiency of the operation and maintenance staff is improved.