In order to realize personnel localization in digital transformer substation with high accuracy and low cost, the ZigBee wireless sensor network is introduced, the currently used direct ranging method is improved, and the fuzzy reasoning algorithm is proposed. In the fuzzy reasoning algorithm, the received signal strength indication (RSSI) of each reference node and the relative distance between two reference nodes are considered as input value, and the confidence degree of RSSI of each reference node can be obtained after the fuzzification, fuzzy inference and defuzzification. Then the trilateral localization calculation can be carried out consequently through three reference nodes with higher confidence degree. The simulation results indicate that the proposed algorithm, which only needs less nodes and does not need any additional hardware, obtains less localization errors and better accuracy than the ranging algorithm.