Combining with the building background and process of CAFTA, this article attempts to illustrate the establishment and significance of ASEAN economic and trade dispute settlement mechanism from the perspective of international relations and law. CAFTA dispute settlement mechanism should be divided into internal and external parts, which is also classified into governmental, non-governmental and judicial types. The in-depth study on the internal dispute settlement mechanism of CAFTA shows its shortcomings and gives suggestions for further improvement. By combining various legal ways, a sound environment can be created to help it solve the disputes arising in the course of CAFTA easily. Besides, it can promote the economic and trade exchanges between China and ASEAN countries, and also improve the effectiveness of the international dispute settlement mechanism as an abstract system. By doing this, it achieves the purpose of maintaining regional stability and promoting economic development. It also provides reference for building a new kind of mutual respect, justice, cooperation and win-win dispute settlement mechanism.