The invention discloses a fault locating system and a fault locating method of an integrated automation optical transceiver of a traction substation. The fault locating system of the integrated automation optical transceiver of the traction substation comprises an optical fiber Ethernet ring network composed of N optical transceivers that are sequentially connected in series, adjacent optical transceivers are connected by an optical fiber, N1 optical transceivers in the N optical transceivers separately monitor N1 secondary devices of the traction substation in a one-to-one correspondence manner, 3 optical transceivers in the N optical transceivers are separately connected with a telecontrol unit 1, a telecontrol unit 2 and a universal communication apparatus in a one-to-one correspondence manner, wherein the telecontrol unit 1, the telecontrol unit 2 and the universal communication apparatus are sequentially connected in series; the optical transceiver connected with the universal communication apparatus is provided with a local side telesignalisation port; and telesignalisation is output by the local side telesignalisation port, and the telesignalisation comprises local side setting telesignalisation, ring network state telesignalisation, module fault telesignalisation and communication fault telesignalisation.