One of the tests carried out on a transformer after assembly is the lightning impulse test, for assessment of the integrity of its winding insulation. In the case of a fault, it has been well established that the pattern of the fault currents contains a typical signature of the nature and location of the insulation failure involved. This paper describes a new approach using the 'wavelet transforms' to classify the patterns inherent in different fault currents. Whereas conventional frequency-response analysis based techniques fail to identify the time-localization of a particular frequency component in a time-dependent signal, the wavelets are not only localized in frequency, but also in time. The 'time-frequency localization' feature of wavelet transform is employed for pattern classification of impulse fault currents of transformers. Results for simulated models of 3 5 and 7 MVA transformers are presented to illustrate the ability of this approach to classify insulation failures.