A finite element method for the analysis of two-layer tidal current flow considering an open boundary condition is presented in this paper. The nonlinear shallow water equation are used for both upper and lower layers as the governing equation. The incident wave condition, which does not cause spurious reflective waves on the open boundary, has been applied lo the boundary condition in the two layer tidal current analysis. In this method, both velocity and water elevation are assumed to be a linear combination of the incident component as a known function, and the reflective component, which is essentially unknown. A subdomain located adjacent to the open boundary is introduced to determine the reflective wave component. The reflective wave component on the open boundary can be extracted by computation in the subdomain. The numerical results were compared with the analytical solutions and observed data and show good agreement.