Mechanism of electric conduction in a hydrous electro-rheological fluid has been investigated. Simultaneously with a rheological measurement, an electric current under a sinusoidal electric field was monitored by using a digitizing oscilloscope, and was separated into a conduction current and a displacement current by means of Fourier analysis. It has been found that the conduction current and the viscosity correlate to each other, and the suspension has a nonlinear conductivity, though the silica particle itself has ohmic conductivity. Microscopic observations were also made and the results indicate that the conduction current passes the cluster of particles spanning between the electrodes. On the basis of the experimental results a simple cluster model for the electric conduction is developed, which can explain the correlation between the conduction current and the viscosity, and the nonlinearity of the current response.