In this paper, the integrated conception of transformer protection principle based on equivalent equation and winding deformation on-line detecting has been presented. The transformer protection principle based on equivalent equation has been researched. Both of the equivalent equation protection criterion based on complete or fault component and the threshold on-line setting method are described in this paper. The on-line method uses the variation of the leakage inductance to monitor the transformer winding deformation. According to the parameter identification of winding leakage inductance, this paper puts forward a comprehensive and systematic integrated method of transformer protection principle and winding deformation on-line detecting. Using the transformer dynamic test data to inspect and verify, the conclusion can be brought that the winding parameter identification is accurate as well as be able to meet the requirements of transformer protection and online monitoring. The protection algorithm is theoretically clear and it can correctly and rapidly recognize the various transformer internal short circuits with distinct features.