Lunar water ice is an important resource to support the construction of lunar base and other deep space activities, and it is crucial to detect lunar water ice. In this paper, we studied the detection of lunar water ice based on a small neutron generator through Monte-Carlo simulation. The schematic of the detection system and the principle are explained. The simulation results demonstrate that the change of thermal neutron flux with the increase of water content is most obvious and clear. There is a positive correlation between thermal neutron counting and water content in lunar soil. Using thermal neutron counting, the water content can be obtained by inversion.