To evaluate the accuracy and applicability of the TMPA 3B42-V7 precipitation product for the Lancang River basin, we used different statistical indices to explore the performance of the product in comparison to gauge data. Then, we performed a hydrologic simulation using the Variable Infiltration Capacity (VIC) hydrological model with two scenarios (scenario I: streamflow simulation using gauge-calibrated parameters; scenario II: streamflow simulation using 3B42-V7-recalibrated parameters) to verify the applicability of the product. The results of the precipitation analysis show good accuracy of the V7 precipitation data. The accuracy increases with the increase of both space and time scales, while time scale increases cause a stronger effect. The satellite can accurately measure most of the precipitation but tends to misidentify non-precipitation events as light precipitation events (<1 mm/day). The results of the hydrologic simulation show that the VIC hydrological model has good applicability for the Lancang River basin. However, 3B42-V7 data did not perform as well under scenario I with the lowest Nash–Sutcliffe Coefficient of Efficiency (NSCE) of 0.42; scenario II suggests that the error drops significantly and the NSCE increases to 0.70 or beyond. In addition, the simulation accuracy increases with increased temporal scale.