This paper introduces the basic principle of transformer fault current limiter that is composed of a capacitor in parallel with primary side of a transformer, whose second side is connected to a discharge gap. The current limiting effect is described quantitatively by analyzing the steady-state characteristics while the fault current limiter is limiting short-circuit current. The application of the fault current limiter in a 500 kV power system is simulated with PSCAD software which can create the equivalent simulation model. To verify the current-limiting effect of the fault current limiter, a practical short-circuit test circuit is given. The short-circuit test is programmed respectively based on the circuit with and without the fault current limiter. Meanwhile, by simulating short-circuit of a test circuit with PSCAD software, the waveforms of the short-circuit current will be accessed. The experimental results and simulation results show that the transformer-based fault current limiter has a good effect on limiting short-circuits current and can be used as an effective protector for restraining the short-circuit current in power systems.