For Interferometry Synthetic Aperture Radar (InSAR), the normal baseline is one of the main factors that affect the accuracy of the ground elevation. For Gaofen-3 (GF-3) InSAR processing, the poor accuracy of the real-time orbit determination resulting in a large baseline error, leads to the modulation error in azimuth and the slope error in range for timely Digital Elevation Model (DEM) generation. In order to address this problem, a baseline estimation method based on external DEM is proposed in this paper. Firstly, according to the characteristic of the real-time orbit of GF-3 images, orbit fitting is executed to remove the non-linear error factor. Secondly, the height errors are obtained in slant-range plane between Shuttle Radar Topography Mission (SRTM) DEM and the GF-3 generated DEM after orbit fitting. At the same time, the height errors are used to estimate the baseline error which has a linear variation. In this way, the orbit error can be calibrated by the estimated baseline error. Finally, DEM generation is performed by using the modified baseline and orbit. This procedure is implemented iteratively to achieve a higher accuracy DEM. Based on the results of GF-3 interferometric SAR data for Hebei, the effectiveness of the proposed algorithm is verified and the accuracy of GF-3 real-time DEM products can be improved extensively.