This paper aims to examine capillarity effect on flows in the drainage layer of highway pavement. A two-dimensional (2-D) model based on the Richards equation was used to simulate saturated and unsaturated flows in the drainage layer. For comparison, flows were also simulated using a 1-D Boussinesq equation based model and a 2-D model based on the Laplace equation, both assuming saturated flow only. The drainage layer was modeled with sand and gravel, which possess similar hydraulic properties to those of commonly used filling materials in practice. The results showed that the two saturated flow models agreed well with each other, indicating the dominance of horizontal flow in the drainage layer. However, their predictions differed significantly from those of the variably saturated flow models. The latter model predicted significant flow activities in a relatively large unsaturated zone, especially for a sandy drainage layer. Such unsaturated flow contributes to and enhances the capacity of the drainage layer. With the unsaturated flow neglected, the saturated flow models over-predicted the extent of the saturated zone and hence the groundwater table elevation. As the current engineering design of the drainage layer is typically based on the groundwater table elevation predicted by the saturated flow models, the finding of this study suggests that the design criterion is likely to lead to over-design of the drainage system. Further work is also required to prove the practical significance of the capillary effect and account for other factors.