A banknote allocation method and system for banknote dispensing of a self-service terminal. The method comprises : collecting statistics on a banknote rejection rate of each banknote container in a self-service terminal in a current banknote adding cycle (S101); performing banknote allocation calculation according to a total amount of cash to be dispersed of a current service and a current available denomination of each banknote container, to obtain at least one feasible banknote allocation scheme (S102); calculating an expected banknote rejection quantity of the at least one feasible banknote allocation scheme according to the banknote rejection rate of each banknote container (S103); and selecting the banknote allocation scheme corresponding to the smallest expected banknote rejection quantity, and dispersing banknotes according to the banknote allocation scheme corresponding to the smallest expected banknote rejection quantity (S104). The method and system of the invention can achieve a minimum quantity of rejected banknotes resulting from each event of banknote dispersing, extending an operation time of a reject container, and eliminating the problem in which when a banknote allocation scheme results in low quality of dispersed banknotes, a reject container will soon be filled with unusable banknotes rejected during banknote dispersing, and therefore a self-service terminal cannot continue to provide a cash service.