The BeiDou global navigation satellite system (BDS-3) has established the Ka-band inter-satellite link (ISL) to realize a two-way ranging function between satellites, which provides a new observation technology for the orbit determination of BDS-3 satellites. Therefore, this study presents a BDS satellite orbit determination model based on ground tracking station (GTS) observations and ISL ranging observations firstly to analyze the impact of the ISL ranging observations on the orbit determination of BDS-3 satellites. Subsequently, considering the data fusion processing, the variance component estimation (VCE) algorithm is applied to the parameter estimation process of the satellite orbit determination. Finally, using the measured data from China’s regional GTS observations and BDS-3 ISL ranging observations, the effects of ISL ranging observations on the orbit determination accuracy of BDS-3 satellites are analyzed. Moreover, the impact of the VCE algorithm on the fusion data processing is evaluated from the aspects of orbit determination accuracy, Ka-band hardware delay parameter stability, and ISL ranging observation residuals. The results show that for China’s regional GTSs, the addition of BDS-3 ISL ranging observations can significantly improve the orbit determination accuracy of BDS-3 satellites. The observed orbit determination accuracy of satellite radial component is improved from 48 cm to 4.1 cm. In addition, when the initial weight ratio between GTS observations and ISL ranging observations is not appropriate, the various indicators which include orbit determination accuracy, ISL hardware delay, and ISL observation residuals were observed to have improved after the adjustment of the VCE algorithm. These results validate the effectiveness of the VCE algorithm for the fusion data processing of the GTS observations and ISL ranging observations.