This study documented the case history of the new Sanyi railway tunnel. The New Austrian tunneling method (NATM)-built mountainous tunnel was seriously damaged during the 1999 Chi-Chi earthquake. In order to better understand the vulnerability and the deformation of the underground structure subject to strong ground motion, the modified cross-section racking deformation (MCSRD) method was used to evaluate the seismic performance of the tunnel. The analyses carefully took the nonlinear soil-structure interaction into account in order to derive damage pattern of the tunnel. Based on the analysis results, in addition to the extremely strong ground motion, numerical testing identified the causes of the disaster to include rectangle-like geometry at the refuge section, non-reinforcement of the second lining, and imperfect backfilling. The results also showed that the second lining of the NATM-built tunnel sustained substantial seismic loading and should be suitably reinforced in seismically active areas. The effect of the reinforcement of the second lining was demonstrated with a reinforcement example.