AbstractAfter large‐scale distributed power sources are connected to the distribution network, the fault current undergoes noticeable changes, affecting the accuracy of traditional single‐phase grounding fault algorithms. Therefore, the objective of this paper is to address the impact of distributed power integration on the grounding algorithms of distribution networks. The main contribution is: by establishing an electrical system structure and model for distribution network grounding faults that include distributed generation (DG), theoretically deriving and calculating the transient zero‐sequence current frequency changes at the moment of fault, analysing the directional characteristics of zero‐sequence currents under DG connection conditions, designing a local grounding fault judgment algorithm based on energy extremum direction, and providing a fault judgment and isolation process for grounding fault monitoring devices. The results show: through simulation and experimentation, the algorithm was tested, and the method can reliably judge grounding faults under various transition resistances, different numbers and capacities of connected distributed power sources, and different grounding switch‐on angles. The applicability of the algorithm covers both methods of neutral grounding through an arc suppression coil and ungrounded neutrals, adapting to scenarios with or without DG connections.