The present invention relates to a position identification system and a method for gesture identification thereof. The method for gesture identification does not use the conventional digital image capture method, instead, the method uses IR detection. In order to accurately detect the movement track of the external object, in the present invention, at least two IR LED are provided. When the first IR LED emits the IR ray signal, the second IR LED is used for receiving IR ray signal. Moreover, the present invention determines the distance between the external object and the IR LEDs by detecting the emitting IRs with different energy. Further, the present invention adopts TDM (Time Division Multiplexing) such that the present invention can grasp the distance between the first IR LED and the external object and the distance between the second IR LED and the external object. Thus, the relative position of the external object can be captured.