The relationship between the localized fault sizes and the vibrations of the bearing-housing system is an important parameter for the accurate diagnosis of the bearing faults. To study the influences of the fault sizes on the system vibrations, a dynamic finite element model for a bearing-housing system with a localized fault is proposed. It can consider the deformations and gravity of the system components, as well as the contacts and frictions between the mating components of the bearing. Vibration characteristics of the system caused by the fault with different sizes are studied. The relationship between the fault sizes and system vibrations are obtained. The results can provide a method for predicting the vibration characteristics of the system. It seems that this work also can provide some useful foundations for the accurate fault defection and diagnosis of the bearing-housing system.