Based on the liquidity preference theory, we deduc a theoretical model showing that firms with different finance constraints vary their cash holding decisions according to the cash flow volatility. Meanwhile we analyze the interaction of firm's financial constraints, cash flow volatility and cash holdings through empirical test with 4285 firm-years from 2001 to 2006. The result shows that in the Chinese capital market the cash flow volatility of financially constrained firms is higher than that of unconstrained firms, while cash holdings are lower; the cash holdings of former ones are significantly positive related to cash flow volatility, but later ones have no significant relationship.