Since the practical system in many real-world applications contains several different work stages and multiple failure modes it is a difficult task to analyze such system with the system state’s nonbinary characteristic. An efficient phased mission reliability analysis approach for systems with multiple failure modes is presented in this paper, which is called the extended multivalued decision diagram with multiple failure modes. To reduce the complexity and size of the model, the branch merging, nodes reduction, and phase fusion approaches are used and then an engineering case is given to validate the efficiency of model simplification. At end, the proposed method is illustrated and compared with the binary decision diagram approach through the example.