A strong earthquake with magnitude M_W=7.1 occurred in the area of Molucca Sea, Indonesia on November 14, 2019(Coordinated Universal Time, UTC), and then generated a small-scale local tsunami. In order to better understand the earthquake source characteristics and seismogenic structure, as well as to assess the hazard of tsunami caused by earthquake, this paper mainly focuses on the regional tectonic background, the focal mechanism, and tsunami numerical simulation for the Molucca Sea M_W7.1 earthquake. The broadband seismic waveforms from IRIS Data Management Center are used to estimate the moment tensor solution of this earthquake by W phase method. The result shows that the Molucca Sea earthquake occurred at a shallow depth on a high dip-angle, right-lateral reverse fault, the aftershocks were distributed along the SSW-NNE direction and concentrated near the main shock. These results indicate the Molucca Sea earthquake with characteristic of compressional rupture occurred in the complex plate boundary region of eastern Indonesia, which is dominated mostly by the collision interaction of the Halmahera slab and the Sangihe slab in the east and west sides of Molucca Sea under control of current regional stress field. The coseismic displacements of Molucca Sea M_W7.1 earthquake calculated using Okada's model of rectangular dislocation in a uniform elastic half-space show that the Molucca Sea earthquake generated vertical coseismic deformation with a maximum uplift of 0.15m when the rupture occurred along the high dip-angle reverse fault. The synthetic tsunami waveforms are provided by COMCOT tsunami modelling package solving the nonlinear shallow water wave equations based on the determined fault geometry from W phase inversion. These studies indicate the vertical coseismic deformation resulting in the sudden uplift of water volume above the earthquake source, and finally inducing a small-scale local tsunami. The energy of tsunami mainly propagates to both side of the fault, and part of energy propagates to Sula Islands of Indonesia along the fault dislocation direction; and compared with the first cycle of tsunami records observed by tide gauges deployed along the coastal line of earthquake source region, the observed tsunami head wave fits well with the synthetic wave, both are consistent in amplitude and tsunami arrival time, but the follow-up waveforms are quite different. The numerical simulation of tsunami shows that, in combination with the fault geometry parameters obtained by W phase fast inversion, the tsunami numerical model can be used for tsunami early warning, and it provides sufficient accuracy for forecasting tsunami wave height, thus, having great practical significance for understanding the propagation process and disaster distribution of tsunami.