A new fault detection and isolation matrix algorithm based on the fault overcurrents and their directions is proposed for the analysis of smart distribution systems with distributed generations. Using the correlation matrix to describe the network topology， and the fault overcurrents and their directions from the grid's different fault detect points to form the fault information matrix， the fault section can be diagnosed quickly and precisely through the calculation of the two matrices. With the current network structure and the breaker status， the fault isolation can be realized. Based on this， a modified algorithm suitable for network topology changes is proposed by modifying the fault information matrix and the breaker trip vector. Moreover， the fault tolerance of the algorithm is studied aiming at handling issues associated with various communication systems failures. Case studies show that the approaches proposed are both correct and feasible.