A network device for handling a packet tunnel comprises a receiving module, for receiving a packet from an input port; a query module, coupled to the receiving module, for querying a mapping table according to the input port and a header of the packet, to generate a query result; a processing module, coupled to the query module, for performing instructions of: determining a transformed header and an output port according to the querying result; and replacing the header with the transformed header, to generate a transformed packet; and a transmitting module, coupled to the processing module, for transmitting the transformed packet via the output port.