The transformer conditions monitoring plays important role to prevent fault failures, and to enhance the transformer life. The unique signature of transformer is the neutral current. It responds significantly to smallest change in the transformer working condition. The analysis of neutral current characteristics is tedious job.In this paper a novel method continuous wavelet transformation (CWT) is applied to analyse the neutral current characteristics to interpret the fault in transformer. It decomposes and analyses the signal and in frequency domain. The proposed method has been investigated by many real fault samples. The high frequency coefficients are obtained using wavelet transformation. The algorithm is developed to interpret the fault condition and its results are compared with conventional methods. The result indicates that the proposed method can discriminate the no fault condition, turn to turn condition and inter turn fault condition with satisfactory accuracy.