This paper proposes and develops a Power-based Differential Scheme (PDS) for power transformer protection. The proposed PDS for power transformer is based on computing the active and reactive power loci during normal operation, switching, normal power swing, and internal and external faults. The proposed PDS concept based on monitoring and comparing the transformers primary and secondary active and reactive powers. The dynamic response of the proposed PDS is tested and modeled using Matlab/Simulink software a step up transformer fed from single alternator system from one end versus the utility busbar at the other end. The test results confirm the superiority of the proposed scheme to distinguish internal and external faults as well as magnetizing inrush currents with good selectivity, high speed, sensitivity, stability limits and high accuracy response of the power differential scheme.