Based on the characteristics of microgrid, for example small fault current, the bidirectional powerflow, etc, a protection scheme is proposed and simulated. The traditional protection scheme based on overcurrent has some restrictions on the microgrid protection, thus a novel protection needs to be explored. Based on the analysis of the above factors, a microgrid protection scheme is proposed. Wavelet transform is used in analyzing current traveling waves to identify faulted location, the bus bar voltages are used to determine whether a fault happened or not, and disturbance voltages are used to determine fault types. A microgrid model is established using SVPWM with SimPowerSystems in Matlab/Simulink, and different faults in the islanded microgrid are simulated, and the result shows that the proposed protection is valid in an islanded operating mode.