A narrow loop noise bandwidth method is desirable to reduce the error of raw measurements due to the thermal noise. However, it degrades the performance of GPS initial synchronization such as mean acquisition time. And it restricts the loop noise bandwidth to a fixed value determined by the lower bound of the allowable range of carrier-to-noise power ratio, so that it is difficult to optimally track GPS signal. In order to make up for the weak points of the fixed-type narrow loop noise bandwidth method and simultaneously minimize the error of code and carrier measurements, this paper proposes a stepwise-type adaptive bandwidth algorithm for DGPS reference receivers. In this paper, it is shown that the proposed adaptive bandwidth algorithm can provide more accurate measurements than those of the fixed-type narrow loop noise bandwidth method, in view of analyzing the simulation results between two signal tracking algorithms. This paper also carries out sensitivity analysis of the proposed adaptive bandwidth algorithm due to the estimation uncertainty of carrier-to-noise power ratio. Finally the analysis results are verified by the experiment using GPS simulator.