A large number of non-stationary dynamic signals are generated in the working machinery and equipment. Especially, diesel engines often encounter non-stationary transient and time-varying modulation signals, such as the impulse response signals caused by cylinder piston wear. These kinds of signals generated from diesel engine are analyzed by the method of the Local Wave time-frequency proposed in this paper, and then according to the analysis to diagnose the working state of the diesel engine. It proved that the proposed method is feasible and effective. Moreover, it provides an effective way for the diesel engine condition monitor and fault diagnosis.