The invention discloses a dynamic simulation engine testing system, and the system comprises a dynamic simulation dynamometer, a sensing detection system, a control system, an engine rack, a throttle operating mechanism, a clutch operating mechanism, and a gear shift operating mechanism. The dynamic simulation dynamometer comprises a pedestal, a first inertia flywheel bearing support, a second inertia flywheel bearing support, a first motor bearing support, and a second motor bearing support. The first inertia flywheel bearing support and the second inertia flywheel bearing support are respectively provided with a flywheel shaft, and the flywheel shafts are connected with inertia flywheels. A dynamometer motor is disposed between the first motor bearing support and the second motor bearing support. End parts of the flywheel shafts are connected with a coder. The housing of the dynamometer motor is provided with a force sensor. The control system comprises a main control computer, a PLC module, and a frequency converter. The sensing detection system comprises a fuel consumption meter. The invention also discloses a dynamic simulation engine testing method. The system is convenient to install and use, is high in working reliability, and is high in practicality.