The invention provides a small step transient simulation method and system for a distribution network including a distributed power supply. The method comprises the following steps: dividing each device in the distribution network into a low precision requirement unit and a high precision requirement unit; adopting small step digital transient simulation based on an FPGA (Field Programmable Gate Array) for each component in the low precision requirement unit; and adopting a physical real model or a scaled down physical unit for each component in the high precision requirement unit for simulation. The system comprises a digital model unit of the distribution network and a physical real model unit of the distributed network. The method and system of the invention realize simulation with actual clock synchronization; the modeling speed is fast and economic and the parameter adjustment is convenient; and simulation can be performed on a complex distribution network, thus a dynamic process of power system components can be simulated accurately, a system running state can be reflected intuitively and reliably, the combination of complementary advantages of real-time digital simulation and a physical mode can be realized, and the small step transient real-time simulation of hardware equipment in a looped distribution network can be realized.