Periodic impulses in vibration signals and its repeating frequency are the key indicators for diagnosing the localized damage of rolling element bearings. A new method, so called time-wavelet energy spectrum, is proposed to extract the characteristic frequency of faulty elements. It is applied to analyzing the vibration signals of bearings under normal and faulty (with damage on outer race, inner race and ball respectively) statuses. The analysis results show that the time-wavelet energy spectrum is effective in extracting the repeating frequency of periodic impulses. It can not only extract the relatively significant fault feature of outer race damage, but also can extract the weaker fault features of inner race and ball damage.