Recently, the physics-of-failure (PoF) method has been more and more popular in engineering to understand the failure mechanisms (FMs) of products. However, due to the lack of system modeling methods and problem-solving algorithms, the information of FMs cannot be used to evaluate system reliability. This paper presents a system reliability evaluation method with failure mechanism tree (FMT) considering physical dependency (PDEP) such as competition, trigger, acceleration, inhibition, damage accumulation, and parameter combination. And the binary decision diagram (BDD) analytical algorithm is developed to establish a system reliability model. The operation rules of ite operators for generating BDD are discussed. The flow chart of system reliability evaluation method based on FMT and BDD is proposed. The proposed method is applied in the case of an electronic controller drive unit. Results show that the method is effective to evaluate system reliability from the perspective of FM.