A slice method to determine the boundary conditions between the stern bearing and shaft by dividing the journal in the stern bearing into several slice elements along the axial direction is proposed for the first time. A comprehensive finite element model considering the nonlinear force of the water film and the flexibility of the propeller blade is established for a propeller-shaft system. The long bearing approximation is adopted to calculate the pressure distribution around each journal element in the stern bearing. The mode superposition method is employed. The nonlinear equation of motion is solved iteratively using the Newmark method. A parametric study is implemented to analyze the nonlinear vibration characteristics of the system. It is shown that the real motion state of the journal in the stern bearing can be simulated more precisely by the slice method proposed. The responses of the system alternate among period-one, quasi-periodic, multi-periodic, and chaotic motions as the rotating speed increases. The damping ratio has a significant effect on the dynamic characteristics of the propeller-shaft system. The motion of the system is unstable when the damping ratio is very small. At this time, the modes of the flexible propeller blades can be excited readily. The slice method, which can also be extensively used in similar rotor-bearing systems in the engineering field, is very simple and efficient to analyze the nonlinear vibration characteristics of a flexible propeller-shaft system supported by water film bearings.