A polyethylene pipe reinforced by winding steel wires (PSP) consists of steel wires and high- density Polyethylene (HDPE). Due to its unique structure and combination of material, the PSP possesses excellent mechanical properties, and it has been widely used in many fields as a buried pipe. Foundation settlement is an evitable loading, and strength failure of buried PSP sometimes occurs due to the foundation settlement. In this paper, numerical investigation of failure behavior of buried PSP was conducted. Firstly, groups of uniaxial tensile tests were carried out to acquire the rate-dependent constitutive equation of the HDPE. Secondly, finite element model of PSP embedded in soil subject to foundation settlement was established. Steel wires are represented by truss elements, and HDPE pipes were modeled with solid elements. The steel wires are built in a spiral structure similar to the real steel-wire mesh of PSP. The effect of the nonlinear material property of components were considered in the model, as the tensile curves were input into the model. The PSP was buried in soil, and foundation settlement was applied on a part of the soil’s top surface as the displacement boundary condition. Due to the great ductility of HDPE, the steel wires broke prior to the HDPE, so the maximum stress of steel wires was used as the failure criterion of PSP. Once the maximum stress of steel wires exceeds the ultimate strength, PSP was considered to have failed. Based on this model, the stress distribution along PSP was investigated with various internal pressure and settlement displacement. The combined influence of the internal pressure and foundation settlement on PSP failure behavior was analyzed, and the location where failure most possibly occurred was determined under different loading conditions. Furthermore, the influence of different structural parameters of PSP and soil was discussed.