Geothermal energy is clean and sustainable as an alternative to fossil energy. Hydrothermal resources are one of the most important geothermal resources in the world. A two-layer multilateral horizontal well system is proposed to exploit hydrothermal energy with circulating groundwater in this paper. One main wellbore is drilled into the geothermal reservoir. Then several injection and production multilateral horizontal wells are side-tracked from the main wellbore in the upper and lower formation, respectively. In addition, a central insulation tube is installed in the main wellbore. Low-temperature water is injected into the geothermal reservoir through the main borehole annulus and then the injection laterals, to extract heat from the reservoir. Finally, the hot water is produced from the production laterals and pumped to the ground through the central insulated pipe, to be used for residential heating and power generation. In this paper, a three-dimensional unsteady fluid flow and heat transfer model is established for the two-layer multilateral horizontal well hydrothermal geothermal system. Four typical parameters, which are average production temperature, average pressure on injection wells, average production rate and net heat power, are defined and analyzed to evaluate the extraction performance of the system. The whole development can be divided into the stable production stage and the reduction stage based on the variation trend of four characteristic parameters. Moreover, the temperature field, pressure field and velocity field of the formation at different times are compared and investigated to describe visually the dynamic change of the hydrothermal system. As a result, the low temperature region expands like a funnel and the high pressure region shows like a sphere. This paper provides a novel and efficient two-layer multilateral horizontal well system and reveals the production characteristics of the system for the exploitation of hydrothermal resources.