The application of water footprint theory and compensation of Dazhangxi watershed, the water footprints in the upstream and downstream areas of Dazhangxi watershed are calculated. Simultaneously, the direct costs for the ecological environment protection and the indirect costs for limiting the local economic development are calculated by using the opportunity cost method. The results show that the ecological compensation model based on the water footprint theory can effectively link the utilization of watershed water resources to the economic activities of water ecosystem protection together, and it may provide an objective method for the calculation of watershed ecological compensation standard. method in the watershed ecological compensation is a hot and frontier issue in the current researches on ecological compensation. Based on the previous research results of water footprint theory, the original model is modified by introducing the relevant evaluation indices of water resources, and an optimum model for the watershed ecological compensation is established. According to the example of ecological compensation of Dazhangxi watershed, the water footprints in the upstream and downstream areas of Dazhangxi watershed are calculated. Simultaneously, the direct costs for the ecological environment protection and the indirect costs for limiting the local economic development are calculated by using the opportunity cost method. The results show that the ecological compensation model based on the water footprint theory can effectively link the utilization of watershed water resources to the economic activities of water ecosystem protection together, and it may provide an objective method for the calculation of watershed ecological compensation standard.