The present invention discloses a method for detecting a fault and a current differential protection system thereof. The method for detecting fault includes calculating fault component currents, calculating an operate current and a restraint current of all terminals, and adjusting an operate level by adapting an operate-restraint characteristic according to a fault component. The method has very small operating area for external faults, which makes the method very reliable even for the case with serious CT saturation. A very big operating area for internal faults makes the method very sensitive for internal faults even for a heavy load and high resistance fault.