A method of identifying a palm area for a touch panel has steps of: receiving sensing frame information having multiple touching sensing points from the touch panel; selecting one of the touching sensing points; outwardly extending a distance from an outline of the selected touching sensing point to define a searching range; checking whether other touching sensing points are within the searching range; marking the touching sensing points in the searching range and expanding the searching range based on the currently marked touching sensing points; sequentially selecting and checking each touching sensing point if it is within the present searching range; and finally merging all the outlines of the marked touching sensing points to form a final outline as a palm area. Other unmarked touching sensing points are defined as touching reference points.