A method for automatic calibration of a needle position relative to a coordinate system of a sewing machine includes: controlling a X-Y table to move a pallet to bring a sheet under a needle, lowering the needle to penetrate the sheet to form a needle hole and raising the needle, controlling the X-Y table to move the pallet to bring a reference mark and the test hole into an FOV of an image capturing device, obtaining an image of the pallet which contains the reference mark and the needle hole, determining an amount of separation of the needle hole from the reference mark in the image, and calibrating the needle position relative to the coordination system based on the amount of separation thus determined and a reference distance.