In recent years, with the development of economic globalization and financial integration, the fluctuation of one financial market in one country is not only subject to its own change, but also may be affected by otherfinancial markets. Foreign exchange market and stock market are the two important markets in a countrys financial markets. Exchange rate and stock price can not only reflect the countrys economic fundamentals but also reflect the countrys economic development. So the intrinsic relationship between the two receives more and more attention. This paper attempts to analyze the interaction of the RMB exchange rate and stock prices from both theoretical and empirical aspects. First, this paper introduces two classic models about exchange rate and stock market, flow oriented model and stock oriented model. Then this paper makes Granger causality test using data of RMB exchange rate and stock price index before and after the RMB exchange reform in July 2005 respectively.　　 Through the theoretical and empirical analysis, this paper makes conclusion as follows. During the 12 yearsfrom January 2000 to August 2011 there is no one-way causal relationship between RMB exchange rate against US　　 dollar and Shanghai(Securities) Composite Index. Divided by RMB exchange rate reform in July 2005, there is no one-way causal relationship between the Shanghai Composite Index and the RMB exchange rate before the reform; however, after that reform there is a certain kind of one-way causal relationship between the two, but its impact is relatively weak. Moreover, the relationship between RMB exchange rate and Shanghai A-share Index, Shanghai B-share Index and Hang Seng Index is different. Finally, this paper gives some suggestions about RMB exchange rate reform and stock market development.