In and regions of western China, water resources come from mountain watersheds and disappear in the desert plain. The exchange of surface water and groundwater takes place two or three times in a basin. It is essential to analyze the interaction of groundwater with surface water to use water resources effectively and predict the change in the water environment. The conventional method of analysis, however, measures only the flow of a stream and cannot determine groundwater seepage accurately. As the concentration of Radon-222 (Rn-222) in groundwater is much higher than in surface water, the use of Rn-222 was examined as an indicator for the analysis of the interaction between surface water and groundwater. Measurement of the Rn-222 concentration in surface water was conducted to detect groundwater seepage into a stream in the middle Heihe Basin of northwestern China. Furthermore, the simultaneous groundwater flow into and out of a stream from the aquifers was quantified by solving the Rn-222 mass balance equation, in which the losses of gas exchange and radioactive decay of Rn-222 are considered. Meanwhile, river runoff was gauged to determine the exchange rates between surface water and groundwater. The result shows that Rn-222 isotope can be used as a good environmental tracer with high sensitivity for the interaction between surface water and groundwater, especially in the fractured aquifer system, karst aquifer system and discharge basins.