Historically, the damaged cases of tunnels during earthquake are rare due to their good earthquake-resistant performances. However, the tunnel may still be damaged owing to the violent squeeze of surrounding ground when subjected to an extreme strong shaking. On 21 September 1999, the new Sanyi railway tunnel in central Taiwan was seriously damaged by the Chi-Chi earthquake. At that time, the tunnel has been in operation for about one year. The damaged conditions of the tunnel were carefully investigated and well-documented. This paper summarizes the background information related to the geology, strong ground motions, design and construction of the tunnel and presents the damage patterns of the tunnel. Based on the compiled data, the possible reasons why the damages only occurred at some special locations have been proposed. Numerical analyses have been conducted to analyze one of the typical damaged cross-sections in order to explore the damage mechanism of the tunnel. The analyzed damage pattern agrees very well with field condition. The numerical results show that the bad shape of tunnel, the imperfect backfill grouting, and the secondary lining without any steel reinforcement were main factors that caused the tunnel seriously damaged during the earthquake.