The Haiyuan fault is a major seismogenic fault on the northeastern edge of the Tibetan–Qinghai plateau. The 16 December 1920 8.5 Haiyuan, China, earthquake is the largest and most recent event along the eastern Haiyuan fault (the Haiyuan fault in the article). Because only a few near‐field seismic recordings are available, the rupture process remains unclear. To understand the source process and intensity distribution of the 1920 Haiyuan earthquake, we simulated the dynamic rupture and strong ground motion of said earthquake using the 3D curved‐grid finite‐difference method. Considering the differences in epicenter locations among various catalogs, we constructed two models with different source points. For each model, three versions with different fault geometries were investigated: one continuous fault model and two discontinuous fault models with different stepover widths (1.8 and 2.5 km, respectively). A dynamic rupture source model with a final slip distribution similar to that observed on the ground surface was found. The maximum displacement on the ground surface was . Based on the dynamic rupture model, we also simulated the strong ground motion and estimated the theoretical intensity distribution. The maximum value of the horizontal peak ground velocity occurs near Haiyuan County, where the intensity reaches XI. Without considering the site conditions, the intensity values in most regions, based on the dynamic scenarios, are smaller than the values from field investigation. In this work, we present physically based insights into the 1920 Haiyuan earthquake, which is important for understanding rupture processes and preventing seismic hazards on the northeastern boundary of the Tibetan plateau.