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In this paper, wake effect is explicitly incorporated in the reliability evaluation of a wind farm. Energy loss resulting from this effect is included in calculating the reliability indices. Three models for wake effect are discussed and the Jensen model is used in this research. In this model, wind shade, shear effect, and wind direction are also reflected. After incorporating the wake effect, the Monte Carlo technique is used to compute reliability indices. Wind farm model and correlation between load and wind speed are considered. The proposed methodology is applied to a wind farm using wind speed data from the National Renewal Energy Laboratory and load from IEEE Reliability Test Systems. The simulation results show that the proposed techniques are effective and efficient in practical applications.