Abstract: Level of service is a kind of quality criterion, which is used to describe the operating conditions in traffic flow and the feelings of drivers' and passengers'. According to the empirical method, percent time spent following and average travel speed are regarded as the grade indicators to level of service for two-lane highways, although this approach lacks the powerful data explanation. It is discovered that the overtaking ratio can reflect the driver's freedom and the interference conditions among vehicles in traffic flow. By simulation approach, this article plotted relation curve between the V/C and overtaking ratio, then divided level of service of two-lane highways into four grades according to the characters of overtaking behaviors, and determined the numeric area for percent time spent following and average travel speed of each grade, which would provide reference for revision of highway capacity manual and engineering practices.