There is a problem that the calculation of short-circuit faults in a distribution network only considers the distribution network, and neglects the influence of the transformer and the coupling relationship of transmission and the distribution network. This paper proposes a solution based on compensation. Based on the topology and operational data of a distribution network, a normal model is established. According to the type and location of a distribution network short circuit fault, the equivalence of a distribution network under short circuit fault is established. A three-sequence model of a transformer is used to establish the equivalence of the distribution network at the bus bar of the high voltage side of the transformer. Incorporating the equivalence of the distribution network’s normal form into a node admittance matrix and combining with the variation of equivalence of distribution network before and after the fault occurs, the variation on the state of the transmission network is calculated using the compensation method. After the variation is superposed with the network state before the fault, the state of transmission and distribution network is determined successively, and finally voltage sag analysis of transmission and distribution network is completed. The feasibility and accuracy of the proposed algorithm are verified by simulating certain urban power systems. This work is supported by National Natural Science Foundation of China (No. 51777078) and Science and Technology Project of Shenzhen Power Supply Bureau Co., Ltd. (No. SZKJXM20160169).