The dynamic characteristics and tooth spalling fault features are studied for the high-contact-ratio spur gear bearing system. The bending torsional dynamic model is proposed in this study for the gear bearing system with an ellipsoid spalling fault. This model also considers time-varying meshing stiffness, tooth friction, fractal gear backlash, and comprehensive transmission error. The meshing stiffness of the system is evaluated using the potential energy method. The bifurcation diagram, time-domain waveform, Poincaré map, phase map, frequency spectrum, and related three-dimensional map are used as tools to analyze the system’s dynamic response qualitatively. The results reveal that the system’s motion with ellipsoid tooth spalling defect exhibits rich dynamic behavior. The response of the proposed dynamic model is consistent with experimental results in the frequency domain. Therefore, the developed dynamic model can predict the system’s vibration behavior with localized spalling fault. Hence, it could also provide a theoretical foundation for future spall defect diagnosis of the gear transmission system.