Soil moisture and water content in vegetation are the key parameters of land-atmosphere interaction, which affect the seasonal and interannual variations of the global and regional water cycle considerably. To monitor these parameters in global and regional scales effectively, an algorithm for the Advanced Microwave Scanning Radiometers (AMSR & AMSR-E) launched in 2002 has been developed in this paper. This paper presents a physically based radiative transfer model by considering the effects of extinction in soil layer and absorption and radiation in vegetation layer and a retrieval algorithm by using the satellite sensor data. A good accuracy of the algorithm is obtained through the algorithm validation in the Mongolia reference site of the Coordinated Enhanced Observation Project (CEOP). Consequently, a soil moisture data set is generated in Mongolia by applying the algorithm to the AMSR-E.