The contamination of insulator is a big threat to the power system safety. An improved watershed algorithm based on image processing technology is introduced in this paper. This algorithm can be used to obtain the size of contamination area of the insulator, and the main steps are as follows. Firstly, segment the insulator image with watershed algorithm, and then the region growing algorithm is used to process the segmented image, which can guarantee the segmentation effectiveness and reduce the number of segmented regions so as to enhance the segmentation results of the insulator image. Experimental results show that the insulator surface contamination can be accurately monitored by this improved watershed algorithm.