The invention discloses a fault handling method for a distribution network including a distributed power source. The fault handling method is characterized by including the steps of firstly, performing fault location, namely monitoring all remote signal displacement information in the distribution network, selecting fault signals existing in the distribution network according to starting conditions, starting fault analysis if faults are acquired, and performing fault location according to a location analysis method of directional signals; secondly, performing fault isolation, namely performing fault isolation analysis according to the principle of least power loss of load, and providing an isolation strategy; and thirdly, performing fault recovery, integrating the distributed power source into a fault recovery decision under the premise of complying with related rules and standards, and increasing power reliability of the distribution network while fully utilizing the distributed power source. By the fault handling method for the distribution network including the distributed power source, accurate location and quick isolation are provided for faults of the distribution network including the distributed power source, and accordingly fault recovery of the distribution network and adjustment of operation manner after recovery are achieved.