Distance relay plays an important role in the protection of transmission lines. The application of flexible AC transmission systems (FACTS) devices, such as the static synchronous compensator (STATCOM), could affect the performance of the distance relay because of compensation effect. This paper analyzes the application of distance relay on the protection of a transmission line containing STATCOM. New setting principles for different protection zones are proposed based on this analysis. A typical 500 kV transmission system employing STATCOM is modeled using Matlab/Simulink. The impact of STATCOM on distance protection scheme is studied for different fault types, fault locations, and system configurations. Based on simulation results, the performance of distance relay is evaluated. The setting principle can be verified for the transmission line with STATCOM.