The insulation fault of running rails in urban rail transit leads to the abnormal rise of rail potential (RP) and stray current (SC) in return system, which seriously endangers the safe operation of urban rail trains. The fast and accurate location of insulation fault of running rails is an important issue to ensure the safe operation of the system. In this paper, a dynamic calculation model of RP in DC traction power supply system of urban rail transit is proposed to solve the insulation fault of running rails. By analyzing the dynamic distribution characteristics of RP of running rails under ideal insulation and insulation fault during the running of the system, the insulation fault of running rails can be detected and located. At the same time, based on the data of Hefei Metro Line 2, the dynamic distribution of RP of the train under different conditions of insulation fault is simulated and analyzed. The results show that the proposed method can be used to locate the insulation fault of running rails effectively.