A display device and method with an optimal external input setting capability are provided. A method for setting an external input in a display device includes receiving information about an external device which is connected to the display device via a network; determining based on the information about the external device whether the external device has a capability of providing a component output signal; and if the external device has the capability of providing the component output, setting a set of component terminals as a set of external input terminals for receiving a signal from the external device. Thus, when the external device has the capability of providing a component output, the component terminal is set as an external input, thereby obtaining a high definition image. In addition, setting the component terminals as the external input is automatically performed, thus providing convenience to a user.