Leak detection and location of water supply pipelines is an important area of research, and it is especially important to find the leakage location in time and repair them. In view of the problem, that a large amount of noise is mixed in the detection signal when the pipeline leaks, it will inevitably affect the detection and positioning effect. In this paper, a denoising algorithm based on improved module maximum is proposed. Firstly, a discrete binary wavelet transform is carried out on the noisy signal, and the module maximum point corresponding to the wavelet transform coefficients, on each scale, is obtained. Secondly, different thresholds are used for the module maximum of different scale layers and the wavelet coefficients are reconstructed according to the retained module maximum and their extremums. Thirdly, the alternative projection algorithm is used to effectively suppress the false oscillations in the reconstructed signal, improve the quality of the reconstructed signal, and obtain the noise reduction signal. Finally, according to the theory of the negative pressure wave, the inflection point of the negative pressure wave is identified by the wavelet decomposition method, and the location of leakage point is determined. In order to verify the effectiveness of the proposed algorithm, a leakage simulation experiment system of water supply pipeline is built. The analysis of the results shows that, compared with the wavelet denoising method and the EMD-based method, the method proposed in this paper achieves a better denoising effect, obtains a smoother pressure signal, retains the signal waveform characteristics, and identifies the obvious inflexion point of the negative pressure wave. The minimum relative error of leakage point location is 0.9%, and the maximum relative error is 2.5%.