Full-wave Fourier algorithm is influenced by the decaying DC component when extracting fundamental component from the fault current. In order to solve the problem, a novel full-wave Fourier algorithm of filtering decaying DC component is proposed and the derivation of the decaying DC component parameters calculation is given. Firstly, the initial amplitude and decay time constant of the decaying DC component can be calculated with the sampling values in one cycle of the fault current, and then the corrected sample values can be got by using the sampling values minus the decaying DC component. The fundamental component can be got by the revised sampling values with full-wave Fourier improved algorithm. The static model simulation signals and PSCAD/EMTDC simulated signals are applied to test the performance of the algorithm separately. The simulation results illustrate that the proposed algorithm can effectively reduce the impact of decaying DC component. Compared with traditional algorithms, the proposed algorithm only needs one cycle of sampling data. The fundamental component is calculated accurately with a small amount of calculation.