The invention relates to an improved algorithm of a water energy utilization improvement rate and a cascade hydropower station dispatching benefit evaluation system. The algorithm includes the following steps: calculating monthly assessment indexes of water level control coefficients of reservoirs according to data of monthly average water levels of actual reservoir operation in recent ten years, designed dead water levels of the reservoirs, designed normal high water levels of the reservoirs and a reservoir dispatching chart, and reversely obtaining water level control objectives; calculating actual power generation amounts; obtaining assessment power generation amounts according to the water level control coefficients of actual reservoir operation, beginning water levels, interval flow, the water level control objectives and dispatching rules; calculating reservoir capacity difference power amounts; and calculating the water energy utilization improvement rate according to the actual power generation mounts, the assessment power generation amounts and the reservoir capacity difference power amounts. According to the algorithm and the system, the stability and the adaptability of a cascade hydropower station group assessment power amount calculation result are improved, a situation that carrying out dispatching according to the dispatching chart will lead to dropping to the dead water levels by water levels when incoming water is lesser at beginning of a year can be avoided, and a good guiding effect is taken for basin cascade hydropower station group optimization dispatching.