Aiming at the problem that CT saturation will affect transformer differential protection’s accuracy and speed, this paper proposes to use Hilbert Huang Transform (HHT) to identify transformer fault under CT saturation condition. The waveform of transformer’s external fault current contains some catastrophe points; in contrast, internal fault current’s waveform is continuous. The new method is just based on this waveform characteristic. Firstly, a group of intrinsic mode functions (IMF) which are different in characteristic scale are obtained from Empirical Mode Decomposition (EMD). Then, Hilbert transform is applied for the first decomposed IMF to get the instantaneous frequency. Instantaneous frequency’s catastrophe points just reflect current’s catastrophe points. According to time interval between the two adjacent catastrophe points, it can identify transformer’s external fault, internal fault and transferring fault accurately. PSCAD simulation results verify that under CT saturation condition, this method can identify all kinds of faults of transformer in 12 ms. Besides, it can block the inrush current.