This paper shows the impact of material nonlinearity of a dam-foundation rock system on seismic performance of Oued Fodda concrete gravity dam, located at northwestern side of Algeria. For the purpose, a three-dimensional dam-foundation rock system finite element model is employed in analyses. The hydrodynamic interaction between reservoir water and dam-foundation system is implicitly taken into consideration by the Westergaard approach using surface finite elements added to dam-fluid and foundation-fluid interfaces. The concrete material model is used to present the cracking of dam concrete under a seismic load the using smeared crack approach based on the Willam and Warnke failure criterion. The materially nonlinear analysis for both dam concrete and foundation rock is performed using Drucker--Prager model. According to numerical results, tensile stresses and maximum strains reduce significantly in the materially nonlinear model. In addition, the cracking areas in the dam decrease also when material nonlinearity characteristics of the dam-foundation rock system is considered in analyses.