In this study, we use a time domain numerical model based on the fully nonlinear extended Boussinesq equations <Wei et al., 1995> to investigate surface wave transformation and breaking-induced nearshore circulation. The energy dissipation due to wave breaking is modeled by introducing an eddy viscosity term into the momentum equations, with the viscosity strongly localized on the front face of the breaking waves. Wave run-up on the beach is simulated using a moving shoreline technique. We employ quasi fourth-order finite difference schemes to solve the governing equations. Satisfactory agreement is found between the numerical results and the laboratory measurements of Haller et al. <1997>, including wave height, mean water level, and longshore and cross-shore velocity components. The model results reveal the temporal and spatial variability of the wave-induced nearshore circulation, and the instability of the rip current in agreement with the physical experiment. Insights into the vorticity associated with the rip current and wave diffraction by underlying vortices are obtained. ¿ 1999 American Geophysical Union