In this paper a new algorithm is provided for detecting of electrical islands, based on analysis of transient signals using discrete wavelet transform (DWT) and artificial neural network (ANN). The neural network is taught for Classification of events to the "islands" or "non-islands". Needed features for classification are extracted by DWT of DG transient voltage signal. DIgSILENT, MATLAB and WEKA softwares are used for simulation.Proposed method is tested on a CIGRE medium voltage distribution system with two different types of DGs. The final method is chosen from among 162 relay projects with respect to different criteria, including accuracy, speed, simplicity and cost efficiency is the best.With The analysis done in the best relay selection for DGs, the voltage signal, the mother wavelet db4 and seventh level wavelet transform are used. Simulation results show that this method in compared with existing methods, can detect the electrical islands, with a shorter time and higher accuracy.