Inrush current is still one of the most important issues which restricts the accuracy movements of differential protection. The characteristics of the differential current under the conditions of inrush and internal fault are analyzed. According to the feature of the inrush mutations, a new judgment to identify the inrush current based on wavelet entropy is proposed. In order to solve the problem that the downhill mutations are difficult to identify, biorthogonal multi-resolution analysis is used instead of the conventional orthogonal multi-resolution analysis. The difference pretreatment is used to amplify the characteristics of the singularity of mutations, and the inrush current is identified by the use of the distribution of the three-phase wavelet entropy. Based on the above analysis, the specific implementation scheme is made. Simulation and experiments show that the proposed method is effective.