This paper proposes a technique for detecting and identifying internal winding fault of threephase two-winding transformer. A spectrum component obtained from DWT of differential current is analyzed. A ratio between per unit differential current and per unit time is calculated and performed as comparison indicator in order to discriminate between internal fault condition and external fault condition. Various cases based on Thailand electricity transmission and distribution systems are studied to verify the validity of the proposed algorithm. Results show that the proposed technique has good accuracy to detect fault and to identify its position in the considered system.