A numerical technique for simulating incompressible viscous flow with free surface is presented. The flow field is obtained by penalty finite element formulation. In this work, a modified volume of fluid (VOF) method which is compatible with 4-node element is proposed to track the moving free surface. This scheme can be applied to irregular mesh system, and can be easily extended to three dimensional geometries. Numerical analyses were done for two benchmark examples, namely the broken dam problem and the solitary wave propagation problem. The numerical results were in close agreement with the existing data. Illustrative examples were studied to show the effectiveness of the proposed numerical scheme.