Distributed spaceborne interferometric synthetic aperture radar (DS-InSAR) system includes more than one baseline, so it is also called multi-baseline InSAR system. It offers additional observation information for the derivation of position and height of object, compared to the single-baseline InSAR system. Based on the additional information it offers, a new DEM reconstruction approach of multi-baseline InSAR system is proposed. At first, theory of the approach is introduced and DEM reconstruction equations are derived. Then, error sensitivity analysis is made by first order approximation of Taylor expanding, which is validated by Monte-Carlo simulation. The results show that theoretical error analysis formula can give support for analysis and design of the system directly and the DEM accuracy is very sensitive to the interferometric phase difference error.