The invention provides an internal discharge mode recognition method for a transformer, which is characterized in that: a singularity index of a signal waveform is extracted from a discharge acoustical signal of a transformer with a known internal fault; singularity indexes of signal waveforms corresponding to various discharge modes are collected, and an acoustical signal feature library for various discharge modes is established; the waveform of a discharge acoustical signal of the monitored transformer is monitored and obtained, and the singularity index of the signal waveform is extracted; the singularity index of the signal waveform of the discharge acoustical signal of the monitored transformer is compared with the acoustical signal feature library, and if the singularity index of the signal waveform of the discharge acoustical signal of the monitored transformer is the same as the singularity index in the feature library, the corresponding discharge mode is determined. The invention further provides an internal discharge fault diagnosis system for the transformer, which is based on the method. According to the method, the internal discharge acoustical signal of the transformer is precisely and stably monitored, the internal discharge mode recognition is performed accurately, and a fault can be found in time through analysis and process of the monitored acoustical signal.