In the view of the fact that the information of the fault characteristic of the train wheelset is submerged into the background noises and the conventional spectral analysis method has its own deficiency due to the fuzzy spectrum value created by the load variation and rotation speed fluctuation, the paper proposes a method of the characteristic spectrum analysis of the on-line fault diagnosis of the train wheelset. And the correspondent system is developed to meet the practical application. In the paper, the issues such as the signal sampling, signal processing and the inhabitation of the characteristic spectrum leakage besides the principle of the new method. The application indicates the method is reliable and effective since it can describe the fault characteristic more exactly than any other conventional ones.