This study presents a systematic approach to analyze the flow diversion and flow focusing caused by the natural flow-barrier system in the unsaturated zone (UZ) of Yucca Mountain, Nevada, under ambient steady-state flow conditions. An existing analytical solution for analyzing capillary barrier in porous media has been extended to apply to the fractured porous rock. The new analytical solutions are used to identify the critical layers and to provide the guidance for generation of a proper three-dimensional (3-D), site-scale numerical grid. A large-scale 3-D numerical model (with more than a million grid blocks) has been developed with site-specific data to analyze the major flow patterns in the mountain. Our analyses show that large-scale lateral flow could take place in the UZ under ambient conditions, as a result of capillary barriers formed at the contacts of heterogeneous rock layers. This lateral flow runs generally toward the east (in the southern part) or southeast (in the northern part), which is consistent with the dip of the layer contacts. About 90% of the total lateral flow is found to be conducted by only a few critical rock layers. Faults that penetrate these rock layers act as vertical capillary barriers that stop the lateral flow. The combined effect of horizontal and vertical capillary barriers resulted in reduced percolation flow through repository horizon in general but focused downward flow along those penetrating faults. The model results were found to be consistent with the field water saturation. The findings of this study are consistent with a previously published two-dimensional (2-D) analysis and recent published modeling results using field-observed Cl− data.