A packaging substrate having a semiconductor chip embedded and a fabrication method thereof are provided. The method includes forming a semiconductor chip in a through cavity of a core board and exposing a photosensitive portion of the semiconductor chip from the through cavity; sequentially forming a first dielectric layer and a first circuit layer on the core board, the first circuit layer being electrically connected to the electrode pads of the semiconductor chip; forming a light-permeable window on the first dielectric layer to expose the photosensitive portion of the semiconductor chip and adhering a light-permeable layer onto the light-permeable window, thereby permitting light to penetrate through the light-permeable layer to reach the photosensitive portion. Therefore, when fabricated with the method, the packaging substrate dispenses with conductive wires and dams and thus can be downsized.