SARS-CoV-2 infection causes a wide spectrum of clinical manifestations in humans, and olfactory dysfunction is one of the most predictive and common symptoms in COVID-19 patients. However, the underlying mechanism by which SARS-CoV-2 infection leads to olfactory disorders remains elusive. Herein, we demonstrate that intranasal inoculation with SARS-CoV-2 induces robust viral replication in the olfactory epithelium (OE), not the olfactory bulb (OB), resulting in transient olfactory dysfunction in humanized ACE2 (hACE2) mice. The sustentacular cells and Bowman's gland cells in the OE were identified as the major target cells of SARS-CoV-2 before invasion into olfactory sensory neurons (OSNs). Remarkably, SARS-CoV-2 infection triggers massive cell death and immune cell infiltration and directly impairs the uniformity of the OE structure. Combined transcriptomic and quantitative proteomic analyses revealed the induction of antiviral and inflammatory responses, as well as the downregulation of olfactory receptor (OR) genes in the OE from the infected animals. Overall, our mouse model recapitulates olfactory dysfunction in COVID-19 patients and provides critical clues for understanding the physiological basis for extrapulmonary manifestations of COVID-19.