Power quality is seriously affected by increasing-harmonic pollution in the power system. In order to manage the power system harmonic pollution more effectively, the paper a new develops instantaneous reactive power theory d-q method based on Wavelet-transform for harmonic analysis of power system. In the new approach, LPF for separating fundamental-wave of instantaneous reactive power theory d-q method will be replaced by the wavelet transform, and the link for eliminating the negative sequence component will be added after Park-transform. Wavelet transform is implemented by the wavelet multi-resolution analysis,fundamental wave and harmonic components of the three-phase current can be obtained by reconstructing the DC component and frequency AC component after Wavelet-transform. Modeling and simulation of this approach based on PSCAD, and the new d-q method is compared with d-q method. Experimental results show that d-q method based on Wavelet-transform can more accurately detect the fundamental and harmonic components.