A storage system with a data recovery function and its method reduce errors in a storage medium to a recoverable range of a general ECC function by repeating a testing and recovery procedure for one or more times to assure the accuracy of reading data and enhance the data reliability effectively. The data recovery procedure includes the steps of providing test data by a test data generator of the storage system, writing the test data into a memory block where error data is found, finding an error bit by reading the test data, reducing the error to a recoverable range of the ECC technique by the recovery procedure. If the error bit cannot be found or reduced to a recoverable range of the ECC technique within an upper limit of the number of tests, the memory block is marked as bad.