Disclosed is a distributed controlled passive optical network system and bandwidth control method thereof. The system comprises an optical line terminal (OLT), plural optical network units (ONUs) and a splitter with combiner. Each ONU has a first Tx/Rx for respectively transmitting and receiving data packets on an upstream data channel and a downstream data channel, and a second Tx/Rx for transmitting and receiving control signals/commands on a control channel. Upstream data of each ONU is carried by the upstream data channel and sent to the OLT through the splitter with combiner. Downstream data of the OLT is carried by the downstream data channel and sent to corresponding ONUs through the splitter with combiner. With the control signals/commands carried by the control channel, the required information of network status among the ONUs is provided.