An apparatus and method for automatically switching the operation mode of a Universal Serial Bus (USB) switching circuit in a portable terminal are provided. If an external device is connected to a USB interface unit, a signal is detected from the USB interface unit. The type of external device is identified by the detected signal. If the identified external device is a USB communication device, a communication mode is activated and a signal path is established between an internal module and the USB communication device during the communication mode. A determination is made as to whether an internal event occurs in the portable terminal and an external event occurs in the USB communication device, during the communication mode. The mode of the USB switching circuit is switched to a sleep mode if the internal and external events have not occurred.