A location estimation algorithm based on the sea-surface beacon is proposed in this paper. The beacon is utilized to provide ultrasonic signals to the underwater vehicles around the beacon to estimate precise position of underwater vehicles (ROV, AUV, Diver robot), which is named as USBL (Ultra Short Baseline) system. It utilizes GPS and INS data for estimating its position and adopts DWT (Discrete Wavelet Transform) de-noising filter and UKF (Unscented KALMAN Filter) elaborating the position estimation. The beacon system aims at estimating the precise position of underwater vehicle by using USBL to receive the tracking signals. The most important one for the precise position estimation of underwater vehicle is estimating the position of the beacon system precisely. Since the beacon is on the sea-waves, the received GPS signals are noisy and unstable most of times. Therefore, the INS data (gyroscope sensor, accelerometer, magnetic compass) are obtained at the beacon on the sea-surface to compensate for the inaccuracy of the GPS data. The noises in the acceleration data from INS data are reduced by using DWT de-noising filter in this research. Finally the UKF localization system is proposed in this paper and the system performance is verified by real experiments.