The hydropower plants in China are mostly located in southwest region where the seismic intensity is high. Aiming at the issue of seismic damage mechanism of underground powerhouse, Yingxiuwan and Yuzixi hydropower plants which were nearest to the epicenter of Wenchuan M8.0 earthquake were taken as the objects of analysis. Firstly, the post-earthquake in-situ investigation was conducted on the structures of the two hydropower plants. Then, the finite element mesh, which simulated both surrounding rock and powerhouse structures of Yingxiuwan plant, was established. The wave field method was employed to perform numerical calculation on the structural stability of underground caverns under seismic effect. Finally, based on the numerical results and in-situ investigation conclusions, the seismic damage mechanism of underground powerhouse structures was expounded. The in-situ investigation results showed that the seismic damages of underground structures were mostly surface shedding and closed cracks. The damage degree of underground structures was much smaller than that of ground structures. The seismic damage laws revealed by numerical calculation basically agreed with the investigation findings. This indicated that the seismic damage mechanism could be analyzed by using numerical results. It was therefore concluded that the incident angle of seismic wave was the external cause of seismic damage; the nonuniformity of spatial distribution of powerhouse concrete was the internal cause; the existence of rock mass surrounding the underground powerhouse accounted for the fundamental difference between underground and ground seismic damages.