Aiming at the problem that insulator image backgrounds are complex and fault types are diverse, which makes it difficult for existing deep learning algorithms to achieve accurate insulator fault diagnosis, an insulator fault diagnosis method based on multi-mechanism optimization YOLOv8-DCP is proposed. Firstly, a feature extraction and fusion module, named CW-DRB, was designed. This module enhances the C2f structure of YOLOv8 by incorporating the dilation-wise residual module and the dilated re-param module. The introduction of this module improves YOLOv8’s capability for multi-scale feature extraction and multi-level feature fusion. Secondly, the CARAFE module, which is feature content-aware, was introduced to replace the up-sampling layer in YOLOv8n, thereby enhancing the model’s feature map reconstruction ability. Finally, an additional small-object detection layer was added to improve the detection accuracy of small defects. Simulation results indicate that YOLOv8-DCP achieves an accuracy of 97.7% and an mAP@0.5 of 93.9%. Compared to YOLOv5, YOLOv7, and YOLOv8n, the accuracy improved by 1.5%, 4.3%, and 4.8%, while the mAP@0.5 increased by 3.0%, 4.3%, and 3.1%. This results in a significant enhancement in the accuracy of insulator fault diagnosis.