Due to the discontinuity of soilbag materials, experiments of a soilbag under biaxial compression were modeled using discrete element method, and the mechanical characteristics of the soilbag were analyzed on a mesoscopic level. Monte-Carlo algorithm is introduced to randomly generate an assembly of soil particles with a certain grain composition. The contact between soil particles is simulated by a combination of a spring-dashpot-slider model, while the contact between bag particles is simulated by a rubber band-dashpot model. The results show that the bearing capacity of the soilbag is much higher than that of soil without a bag. When failure occurs, the overall deformation of the soilbag is also far higher than that of soil without a bag, and the tension between particles has a non-uniform distribution. The stress-strain relationship obtained from simulations agrees well with the theoretical formula. Under vertical loads, the intergranular force chains develop from the uniform circular distribution to the direction of the large principal stress, while the soil particles move to the both sides. Bag breakage is the direct reason for the soilbag to reach the ultimate strength.