A compensation method for alleviating color shading in a digital image is adapted to correct a color shading phenomenon in a digital image that causes luminance differences between regions in the digital image. The compensation method includes capturing a uniform color block image; calculating horizontal compensation coefficients of a plurality of horizontal segments of the color block image; performing a linear interpolation process on the horizontal compensation coefficients to generate corresponding horizontal interpolation coefficients, and calculating determination horizontal correction coefficients corresponding to all the horizontal segments, respectively; calculating vertical compensation coefficients of a plurality of vertical segments; multiplying the determination horizontal correction coefficients by the vertical compensation coefficients, respectively, so as to obtain a color shading compensation coefficient of each segment, respectively; and multiplying an average luminance value of each segment by a corresponding color shading compensation coefficient, respectively, thus compensating for color shading in the color block image.