According to the characteristics of Bi-satellite formation SAR system, the peculiarity and superiority of differential interferometry were discussed, valid components of baseline for differential interferometry were obtained by decomposing the solid baseline, and then the model of differential interferometry for Bi-satellite formation SAR was established, and a method based on data fusion was used to compensate the measurement noises that were very hard to be avoided. Finally, a computer simulation results confirmed the feasibility and precision of the proposed model and method.