AbstractIn order to understand the nonlinear effect in a two‐layer system, fully nonlinear strongly dispersive internal‐wave equations, based on a variational principle, were proposed in this study. A simple iteration method was used to solve the internal‐wave equations in order to solve the equations stably. The applicability of the proposed numerical computation scheme was confirmed to agree with linear dispersion relation theoretically obtained from variational principle. The proposed computational scheme was also shown to reproduce internal waves including higher‐order nonlinear effect from the analysis of internal solitary waves in a two‐layer system. Furthermore, for the second‐order numerical analysis, the balance of nonlinearity and dispersion was found to be similar to the balance assumed in the KdV theory and the Boussinesq‐type equations. Copyright © 2009 John Wiley & Sons, Ltd.