The invention provides a power distribution cabinet with automatic fault alarm function and the alarm method thereof. The power distribution cabinet comprises a cabinet body and a central controller arranged in the cabinet body, wherein the central controller is electrically connected with a lightning arrester, an electric leakage protection device, an on-off state controller, mutual inductors, a temperature and humidity sensor, an inlet line load switch circuit breaker, a heat radiation fan, an acousto-optical alarm device. The mutual inductors comprise a main circuit voltage mutual inductor, a main circuit current mutual inductor and a branch current mutual inductor for respectively detecting the three-phase four-wire voltage of a main circuit loop, three-phase four-wire current of the main circuit loop and the current of each branch. The lightning arrester and the electric leakage protection device are provided to detect faults including undervoltage, overvoltage, overcurrent, overload, phase loss, electric leakage, and arrester abnormalities. After a fault is detected, the acousto-optical alarm device gives off an alarm, and a user can timely obtain fault information to repair the failed power distribution cabinet with automatic fault alarm function, eliminate safety risk and shorten failure time.