An investigation of the effect of rare earth elements (RE) on erosion resistance of nitrided 40Cr steel is carried out using an erosion test rig in a water-based slurry with quartz particles. Results indicate that a significant improvement occurs in erosion resistance of nitrided 40Cr steel by introducing RE in nitriding processes comparing conventional nitriding processes. Measurement of physical properties exhibits that both hardness and toughness of nitrided 40Cr steel increase in the case using RE-nitriding processes comparing the conventional. Metallurgical microscopy reveals that there is a transformation from a coarse to a fine metallurgical microstructure in the case and an increase in the thickness of white layer on the top of case attributed to an introduction of RE in nitriding, which attributed to an improvement in erosion resistance and physical properties. EDX analysis shows that RE diffuse into the case of 40Cr steel in nitriding process as a result of appearance of micro-alloy. Microscopy revealed that the furrow-like peeling from plastic deformation of material is predominant erosion mechanism of RE nitrided 40Cr steel while the furrow-like peeling with initial cross crack and large grinding peelings takes place predominantly in tests of conventionally-nitrided ones, which results in a significant difference in erosion resistance.