The automatic identification of seedling defects is an important technology of an intelligent automatic transplanting machine, which effectively improves the quality of the transplanting machine’s operation. The accurate segmentation of seedling substrate and seedling region is the key to the success of the seedling defect recognition algorithm. This paper proposes the maxIOU algorithm to calculate the image segmentation threshold: The image G channel and excess green color space were selected as the color space for the segmentation of the substrate region and seedling region by analyzing the color histogram. Several images were randomly selected from the dataset to generate a training set and were labeled manually as the ground truth. The training set images were segmented using a threshold of zero to 255, and the intersection over union (IOU) were calculated using the algorithm segmented result and the ground truth. The threshold corresponding to the average IOU maximum was used as the segmentation threshold. After image segmentation, three features (area of the substrate, area of the seedling, and filling ratio of the lower part of the substrate) were obtained by the algorithm, and the image was identified for whether there was an empty conveyor belt, seedling deficiency, multiple seedlings, skew, and damaged substrate. The algorithm was tested on the automatic transplanter test platform. The experiment results were as follows: Firstly, the image segmentation threshold was calculated by the maxIOU method. The color component interval corresponding to the segmented substrate region was [0, 24] in the G channel, and the color component interval corresponding to the segmented seedling region was [21, 255] in the excess green channel. The average IOU of the substrate area was 0.854, and the average IOU of the seedling area was 0.820 in the verification experiment. Secondly, a dataset including 431 normal seedling images and 69 defective seedling images (empty conveyor belt, seedling deficiency, multiple seedlings, skew, and damaged substrate) was identified for defects. The accuracy, precision, and recall were 97.6%, 97.4%, and 99.8%. The processing time was 71.4 ms. The conclusion of the experiment was as follows: the maxIOU algorithm had high accuracy in the segmentation of the substrate and seedling region. The defect identification algorithm had high accuracy for defect identification of cabbage seedlings, and the algorithm had good real-time performance, which can be applied to high speed field transplanters.