Technical Abstract: In the mountainous regions of China, developing sustainable agriculture requires implementing conservation management practices that prevent soil erosion and conserve soil and water resources. In the semiarid northwest Loess Plateau, the primary conservation management practice is terracing, which increases rainfall infiltration and reduces erosion. Guidelines for terrace construction typically take into consideration landscape parameters such as the slope the land and the depth of the soil. In dryland agricultural areas, capturing and retaining water in soil is critically important, and conceivably terrace guidelines for these areas could additionally include consideration of the effects of terrace design on water storage. Numerical simulation of soil water dynamics is potentially an efficient means of investigating terrace design and moisture retention, but little information is available on the accuracy of such simulations. In this work, we evaluated the accuracy of HYDRUS-2D simulations of water infiltration and redistribution in fallow, level, dryland terraces located in the Loess Plateau. The simulated soil water content distributions were found to be in good agreement with experimental data. Modeling analyses showed that about one-third of the evaporative water losses from the terrace occurred from the riser (side-slope) surface. To prevent such losses, it is advisable to mulch the riser, and perhaps design the terrace so as to minimize the riser surface area. Wide terraces store more water than narrow ones, and with other design considerations being equal, wide beds and minimal riser surface areas will likely enhance water capture and retention. More general analyses of terrace moisture dynamics will require implementing the root growth and water uptake modules contained in HYDRUS-2D, as well as coupling HYDRUS-2D with an overland flow model to account for ponding and runoff.