A method for identifying the fault by current differential protection and a device thereof are provided. The method comprises: measuring the full component currents of the two terminals of a two-terminal line system and calculating the corresponding fault component current vectors; obtaining an operate value by calculating a first difference between an absolute value of the sum of the fault component current vectors and Iset1; obtaining a restrain value by multiplying a second difference with a control factor, in which the second difference is calculated between the maximum of the absolute values of the fault component currents and Iset2 or between the absolute value of the difference of said fault component currents and Iset2; and identifying a fault as an external one or internal one by comparing the operate value with the restrain value. The solutions of the present intention achieve better reliability, sensitivity and faster speed than existing products.