Due to the improvement of accuracy and availability of Digital Elevation Models (DEMs), hydrologic researches which utilize DEMs have gradually reached sound results. In this paper, we developed a system of extracting the channel network directly from a grid Digital Elevation Model. Furthermore, we applied this technique to rainfall-runoff modeling in a watershed. This is done by the following procedures. The first procedure is to smooth the original DEM data in order to remove most of the pits. The drainage direction and the value of accumulated flow of each grid point are then calculated. Unconnected flow paths are linked after searching the outflow points at the margin of subbasins. A threshold is assigned to extract the channel network. This system generates an ordered channel network together with overland flow paths and the range of the drainage basin. Watershed of Li-Yu Tan was chosen as a case study. The information of the river network obtained from the previous procedures was utilized by applying a distributed watershed model to estimate streamflows from this watershed. The results show a suitable combination of these two models.