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This paper presents the study and development of a complete fault location scheme for three-terminal transmission lines using wavelet transforms (WT). The methodology is based on the low and high frequency components of the transient signals originated from a fault situation registered in the terminals of a system. By processing these signals and using the WT, it is possible to determine the time of traveling waves of voltages and/or currents from the fault point to the terminals, as well as to estimate the fundamental frequency components. As a consequence, both faulted leg and fault location can be estimated with reference to one of the system terminals. A new approach is presented to develop a reliable and accurate fault location scheme combining the best the methods can offer. The main idea is to have a decision routine in order to select which method should be used in each situation presented to the algorithm. The algorithm was tested for different fault conditions by simulations using ATP (alternative transients program) software. The results obtained are promising and demonstrate a highly satisfactory degree of accuracy and reliability of the proposed method.