[Objective] Settlement places, including the urban and village areas, are the central areas of human activities. And they are also the hot and difficult spots for the precise interpretation of remote sensing. In order to extract settlement place in hilly area completely, this paper proposed a new method(SF) that can extract target information from the cooperation of multispectral image and panchromatic image.[Methods] The results had been analyzed comprehensively using GF1 image to extract settlement place in Henshan District Yuling City, Shaanxi Province automatically.[Results] The result showed that the extraction accuracy of SF was improved by 19.56% in comparison with the normal method that extracts target information from fusion data only(F); the number of incorrect pixels was decreased by 39.34%, and the missed pixel's number was reduced by 5.34%.[Conclusion] It can be seen that, SF method not only can effectively improve the extraction accuracy of settlement in hilly region, but also can save post-processing work for the reason that the wrong extraction has been reduced significantly. At the same time, it is also a good reference for the extraction of other land-use type.