A projection system including a processing device and a first projector is provided. The first projector includes a first projection unit and a first image capturing unit. The first projection unit is configured to sequentially project a first reference image and a second reference image. The first image capturing unit is configured to sequentially obtain a first captured image and a second captured image. The processing device is adapted to compare the first captured image and the second captured image to obtain a position of an image region having a pixel value change among the first captured image and the second captured image. The processing device defines the position of the image region having the pixel value change as a valid identification region. In addition, an automatic setting method is also provided.