Hidden air bubble defects in the XLPE (Cross-Linked Polyethylene) insulation will seriously affect its electrical performance, which needs to be detected timely to ensure the safe and stable operation of the power system, but the interfaces between bubbles and XLPE may affect the detection. This paper proposes a novel method for high-precision detection and measurement method of micron-sized bubbles in XLPE based on THz time-domain reflection technology. To analyze the influencing factors limiting the high-precision detection and measurement of micron-sized defects, firstly, the propagation law of THz wave in XLPE with and without defects is studied, and the unipolar and bipolar pulses reflected at the defects are analyzed by overlap, and then a new method of micron-sized defects detection and measurement is proposed based on the overlap property of the bipolar pulses, and the relationship between the minimum detecting frequency and the size of the defects in the various detecting methods is determined. And the finite element method is used to simulate the THz detection of XLPE samples with defect thicknesses of 100, 7, 5, and 3 μm, respectively, and the proposed method is validated in conjunction with experiments. The results show that micrometer defects can be detected and measured with high precision using this proposed method, and the error can be controlled within 4.39%, which is significantly better than the conventional detection method. The proposed method can provide a new idea for non-destructive testing of insulation defects.