A vehicle-periphery image generating apparatus and a method of correcting distortion of vehicle-periphery image corrects distortion of the obstacle image appearing in the vehicle-periphery image after viewpoint conversion, so that visual discomfort experienced by the driver is reduced. Images around the vehicle are captured by a plurality of cameras, and an obstacle around the vehicle is detected by an ultrasonic sensor. When the obstacle is detected, a width of an image in the region positioned on the far side of the obstacle is compressed in the center direction of the images to generate the vehicle-periphery image. As a result, when a three-dimensional obstacle around the vehicle appears in an camera image, the camera image is viewpoint-converted so that enlargement or stretching of the obstacle image can be prevented.