Chang'E-1(CE-1) is the first lunar orbiter of China's lunar exploration program. The CCD camera carried by CE-1 has acquired stereo images covering the entire lunar surface. Block adjustment and 3D mapping using CE-1 images are of great importance for morphological and other scientific research of the Moon. Traditional block adjustment based on rigorous sensor model is complicated due to a large number of parameters and possible correlations among them. To tackle this problem, this paper presents a block adjustment method using Rational Function Model (RFM). The RFM parameters are generated based on rigorous sensor model using virtual grid of control points. Afterwards, the RFM based block adjustment solves the refinement parameters through a least squares solution. Experimental results using CE-1 images located in Sinus Irdium show that the RFM can fit the rigorous sensor model with a high precision of 1% pixel level. Through the RFM-based block adjustment, the back-projection residuals in image space can be reduced from around 1.5 pixels to sub-pixel., indicating that RFM can replace rigorous sensor model for geometric processing of lunar images.