Abstract: It is very important to select distribution transformer capacity for power grid. It can optimize the allocation of transformer capacity and enhance the economical efficiency of distribution power grid. Using the idea of economic current density during the choice of wire, a new approach was proposed based on optimum allocated load rate to select distribution transformer capacity. First, a model of transformer capacity optimum allocation was established by using the new method，it not only contained investment, operation and maintenance fees and lost expenses, but also included the economic losses caused by transformer outage. Then, each cost model was constructed scientifically. All these were to achieve the target of minimum annual integrated cost. After optimization and calculation, recommended values of optimum allocated load rate for selecting one, two and three distribution transformers were obtained. Using the recommended values to select distribution transformer capacity is simple and feasible, economical and reasonable. Also, a technical support is provided for selecting distribution transformer capacity in power grid construction.