In this paper, a new digital signal processing method for ultrasonic time-of-flight diffraction (TOFD) estimation is presented. This method is based on wavelet analysis using the Morlet mother wavelet and the least mean squares (LMS) filter. It is designed to remove noise and identify the echo starting point of the ultrasonic signal reflected from the tip of a crack. Both simulated data and experimental data obtained from a steel plate with a crack are used to demonstrate the performance of the proposed method. This method is especially useful when the properties of the ultrasonic crack signal are unknown and the noise is heavy.