The upcoming space-borne LiDAR satellite Ice, Cloud and land Elevation Satellite-2 (ICESat-2) is scheduled to launch in 2018. Different from the waveform LiDAR system onboard the ICESat, ICESat-2 will use a micro-pulse photon-counting LiDAR system. Thus new data processing algorithms are required to retrieve vegetation canopy height from photon-counting LiDAR data. The objective of this paper is to develop and validate an automated approach for better estimating vegetation canopy height. The new proposed method consists of three key steps: 1) filtering out the noise photons by an effective noise removal algorithm based on localized statistical analysis; 2) separating ground returns from canopy returns using an iterative photon classification algorithm, and then determining ground surface; 3) generating canopy-top surface and calculating vegetation canopy height based on canopy-top and ground surfaces. This automatic vegetation height estimation approach was tested to the simulated ICESat-2 data produced from Sigma Space LiDAR data and Multiple Altimeter Beam Experimental LiDAR (MABEL) data, and the retrieved vegetation canopy heights were validated by canopy height models (CHMs) derived from airborne discrete-return LiDAR data. Results indicated that the estimated vegetation canopy heights have a relatively strong correlation with the reference vegetation heights derived from airborne discrete-return LiDAR data (R2 and RMSE values ranging from 0.639 to 0.810 and 4.08 m to 4.56 m respectively). This means our new proposed approach is appropriate for retrieving vegetation canopy height from micro-pulse photon-counting LiDAR data.