Based on the characteristics of the LED chip positioning system, a mathematical model from the image coordinate system to the chip coordinate system is established in this paper. The error distributions of motion control, image processing and calibration process have been measured. The positioning error of LED chip is estimated by Monte Carlo analysis method, and the sensitivity of each measurement variable to the final positioning error.is calculated. The analysis results show that the main error source in the LED chip positioning system is resulted from the angular error around the z axis, while the image processing error and motion control error have less influence on the system error. Therefore, compensating the rotation angle error around the z axis by the calibration algorithm is the key to improve the positioning accuracy of the LED chip.