In simulations using the particle finite element method (PFEM) with node‐based strain smoothing technique (NS‐PFEM) to simulate the incompressible flow, spatial and temporal instabilities have been identified as crucial problems. Accordingly, this study presents a stabilized NS‐PFEM‐FIC formulation to simulate an incompressible fluid with free‐surface flow. In the proposed approach, (1) stabilization is achieved by implementing the gradient strain field in place of the constant strain field over the smoothing domains, handling spatial and temporal instabilities in direct nodal integration; (2) the finite increment calculus (FIC) stabilization terms are added using nodal integration, and a three‐step fractional step method is adopted to update pressures and velocities; and (3) a novel slip boundary with the predictor–corrector algorithm is developed to deal with the interaction between the free‐surface flow with rigid walls, avoiding the pressure concentration induced by standard no‐slip condition. The proposed stabilized NS‐PFEM‐FIC is validated via several classical numerical cases (hydrostatic test, water jet impinging, water dam break, and water dam break on a rigid obstacle). Comparisons of all simulations to the experimental results and other numerical solutions reveal good agreement, demonstrating the strong ability of the proposed stabilized NS‐PFEM‐FIC to solve incompressible free‐surface flow with high accuracy and promising application prospects.