[Objective] Ecological compensation mechanism of water source area was established to improve the ecological environment and promote the sustainable development of the water source area and intake area. [Methods] Ecological compensation theoretical framework of inter-basin water transfer project was investigated based on the analysis of the definition, necessity and principles of ecological compensation, which included the connotations, the identification of behavior subjects, the calculation of ecological compensation quantity, ecological compensation models and approaches for ecological compensation. [Results] The core of inter-basin water transfer project for ecological compensation of water source area was to answer the questions: (1) Why to compensate? (2) Who compensate to whom? (3) What was the content of compensation? (4) How to compensate? Main forest ecological compensation ways mainly include physical and financial compensation, projects and industrial assist, policy and technical support, and intelligence serivices. [Conclusion] The ecological compensation mechanism of inter-basin water transfer project is of great importance to coordinate the relationships between water source area and intake area, to promote ecological protection mechanism and sustainable development, which should be beneficial to ecological civilization construction.