A method computing the propeller-rudder interaction in inviscid flow is presented in which the propeller slipstream deformation is considered as part of the solution to the interaction by satisfying the two boundary conditions on the free vortex sheet of the simplified propeller. The slipstream location is calculated by satisfying the boundary condition of zero normal velocity. The strength-density of the propeller free vortex sheet is determined by satisfying the boundary condition of equal pressure on the two sides of the free vortex sheet and solving the vorticity continuity equation and Bernoulli equation. The rudder is assumed to be a thin plate located far behind the propeller. A Vortex Lattice Method (VLM) is used to predict the rudder forces. The predicted slipstream downstream the rudder is deformed and split into two parts with the starboard part moving upwards and the port part downwards for a right-handed propeller, showing good agreement with the flow visualization in the experiments. Large variations of the free vortex strength-density are found in the region near the starboard side and the port side of the rudder, as well as its downstream wake-plane. Compared to the previously developed linear method, the non-linear method gives a lower rudder thrust, indicating that the method can give a more accurate rudder thrust than the linear method.