A digital camera with a lens being automatically retractable and an automatic retraction method thereof are provided. After the digital camera is turned on, it can continuously capture images from the outside at a predetermined time interval, and convert the images into corresponding image characteristic values and then compare them. When the characteristic values of the current image differ from the previous one and reach a predetermined difference, the lens exposed outside is automatically retracted, so as to reduce damage to the lens due to falling or heavy shaking of the digital camera.