The classical Poulos’s elastic theory method which based on the Mindlin solution in elastic half‐space is only suitable for the analysis of pile groups in elastic half‐space. It cannot take the layered soil into account. By using stress and displacement solutions of axisymmetric problem in layered elastic half‐space, the interaction factor method is extended to the analysis of pile groups in layered elastic half‐space. Solutions of single pile and interaction of two piles in layered elastic half‐space are performed by finite difference method firstly. Then the vertical settlement analysis of pile groups in layered elastic half‐space is presented by considering pile to pile interaction by Poulos’s interaction factor method. Example analysis shows that calculation in two layered elastic half‐space indicates that method of this paper is more rigorous that that of Poulos, and agreeable with BEM method of Chin and Chow whose method based on the accurate solution of two layered elastic half‐space.