Internal winding faults resulting from the degradation of transformer winding insulation can be catastrophic and hence expensive. In the new environment of deregulation, utilities therefore are needing inexpensive methods employed to detect such faults in the incipient stage. The development of an accurate internal fault diagnostic technique for transformers must be based on analysis of quantities from faults scenarios. Considering the safety of personal, the damage that will occur in the transformer, the consumed time, and related cost, simulation involving the modeling of transformers at various incipient fault stages is the best way to generate these fault cases. In this paper, the method used contains a degrading insulation model and a transformer internal short circuit fault model. Since deteriorating insulation involves two stages aging and arcing, the degrading insulation model is composed of an aging model and an arcing model connected in parallel. The degrading insulation model was combined with internal short circuit model, to simulate internal winding incipient faults. The transformer internal incipient fault model was implemented using commercially available finite element analysis software. Various incipient fault scenarios at different degrading levels of the transformer winding insulation were simulated. In these fault scenarios, the terminal voltages and currents of the transformer were analysed in both time domain and frequency domain. The characteristics obtained from the simulation were compared with the characteristics obtained from some experimental fault cases that conveyed incipient like behaviour.