The sensor design and signal de-noising play an important role on the alternating current field measurement system. Some novel methods are used to optimize the sensor design and perform signal processing. Reduce the size of the sensor's structure and append the magnetic core in the exciting coil. The difference in series circuit is applied in the signal detection. Using the multilevel magnifier, filter and demodulation circuit intensify the capability to detect small defect. The appropriate wavelet function is selected to perform the de- noising. The relationship between the disturbing magnetic field and the defect characteristic was analyzed. The signal characteristics de-noised for wavelet are more clearly, the flaw characteristic is more in evidence. Through analyzing the relationships between disturbing magnetic fields characteristic and the defects properties, it was found that wavelet analysis for one-dimensional signal is an effective processing method in alternating current field measurement (ACFM) technique. Keywords-signal processing; Alternating Current Field Measurement technique; ACFM; sensor design; signal de- noising;