To address the mismatch between point-scale physical formulations of runoff generation and concentration and their application at the watershed scale, a prototype rainfall-runoff experiment was conducted in the Nandawa experimental catchment from 2017 to 2018. Multi-source observations, including total runoff, stratified runoff components, groundwater level, and soil moisture, were collected. Based on the representative elementary watershed (REW) theory, watershed-scale conservation equations were derived using mass conservation principles, and a distributed REW hydrological model was developed. Layered runoff simulations and validations were then performed in the nested watershed in conjunction with the Xin’anjiang model. The results show that the REW model effectively reproduces seasonal runoff dynamics, with good agreement between simulated and observed series in terms of both trend and magnitude. Errors mainly occur during extreme rainfall events. The layered runoff simulation results based on the five-subzone structure are in good agreement with the observed data, effectively capturing surface runoff, interflow, and groundwater runoff. The simulated soil moisture content is generally consistent with the measured values. The runoff simulation method based on the REW model provides a new technical pathway for hydrological process simulation and mechanism analysis in small-scale watersheds.