This paper presents a new method for the protective relaying scheme in power transformer using wavelet based neural networks. This approach is as fellows. After approximation and detail information is extracted by daub wavelet transform from differential current of power transformer, the former is used for obtaining the rate of differential currents and restrain currents, the latter used as the input of artificial neural networks to avoid the Hiss-operation in over-exciting state and magnetizing inrush state of power transformer. The simulation of EMTP with respect to different faults, inrush conditions and over-exciting conditions in power transformer have been conducted, and the results preyed that the proposed method is able to discriminate magnetizing inrush states, over-exciting stales and internal faults.