Current methods of fault diagnosis for the grounding grid using DC or AC are limited in accuracy and cannot be used to identify the locations of the faults. In this study, a new method of fault diagnosis for substation grounding grids is proposed using a square-wave. A frequency model of the grounding system is constructed by analyzing the frequency characteristics of the soil and the grounding conductors into which two different frequency square-wave sources are injected. By analyzing and comparing the corresponding information of the surface potentials of the output signals, the faults of the grounding grid can be diagnosed and located. Our method is verified by software simulation, scale model experiments and field experiments.