In order to extract the fault characteristics of the distribution power system automatically, a new method for fault identification based on parameter optimized variational mode decomposition (VMD) and convolutional neural network (CNN) is proposed. First, the VMD is used to decompose electric signals of the main transformer, including the current of the low-voltage inlet line, bus voltage, and so on. The obtained intrinsic mode functions should be arranged in sequence from low to high according to the central frequency. The VMD can obtain the time-frequency matrices. In order to decide the decomposition layers of the VMD adaptively, the partial mean of multi-scale permutation entropy is used to optimize it. Then, the time-frequency matrixes can be converted into pixel matrices by pseudo-colour coding. The pixel matrices which are appropriately compressed can be used as input of CNN. The CNN can autonomously extract the eigenvectors of fault. Finally, the classification algorithms of support vector machine (SVM), naive Bayesian classifier (NBC), extreme learning machine (ELM), and random forest (RF) are used to train and test the feature vectors extracted by CNN to verify the effectiveness of the method. The experiments show that the proposed method has excellent stability, fast convergence speed, and high precision. The technique can effectively complete the fault identification of the distribution network.