Plant grafting has been practiced widely in horticulture and proved as a useful tool in science. However, the mechanisms of graft healing or graft incompatibility remain poorly understood. In this study, Litchi chinensis cv. 'Jingganghongnuo' homograft ('J/J') and 'Jingganghongnuo'/'zhuangyuanhong' heterograft ('J/Z') as compatible and incompatible combination, respectively, was used to study transcriptional changes between incompatible and compatible graft during graft union formation. Anatomical observation indicated that three stages (2 h, 14 d and 21 d after grafting) were critical for graft union formation and selected for high-throughput sequencing. Results indicated 6060 DEGs were differentially expressed in the compatible combination and 5267 DEGs exhibiting in the incompatible one. KEGG pathway enrichment analysis revealed that DEGs were involved in metabolism, wound response, phenylpropanoid biosynthesis and plant hormone signal transduction. The expression of 9 DEGs annotated in auxin pathway was up-regulated in compatible combination than that in incompatible combination. The IAA concentration confirmed that the IAA might promote the graft compatibility. In addition, 13 DEGs related to lignin biosynthesis were differentially expressed during graft healing process. Overall, our results provide abundant sequence resources for studying mechanisms underlying graft compatibility and establish a platform for further studies of litchi and other evergreen fruit trees.