Discontinuous deformation problems are common in rock engineering. Numerical analysis methods based on system models of the discrete body can better solve these problems. One of the most effective solutions is discontinuous deformation analysis (DDA) method, but the DDA method brings about rock embedding problems when it uses the strain assumption in elastic deformation and adopts virtual springs to simulate the contact problems. The multi-body finite element method (FEM) proposed in this paper can solve the problems of contact and deformation of blocks very well because it integrates the FEM and multi-body system dynamics theory. It is therefore a complete method for solving discontinuous deformation problems through balance equations of the contact surface and for simulating the displacement of whole blocks. In this study, this method was successfully used for deformation analysis of underground caverns in stratified rock. The simulation results indicate that the multi-body FEM can show contact forces and the stress states on contact surfaces better than DDA, and that the results calculated with the multi-body FEM are more consistent with engineering practice than those calculated with DDA method.