The paper presents the results of the research on modal parameter estimation based alone on output measurements. A system is excited randomly and random decrement functions are used to separate the random responses from the determination free vibrations. It is shown that on estimation of the natural frequencies and damping ratios of the system is possible using the wavelet transform of the system’s free response. A particular form of the son wavelet function improves the results compared to those obtained with the Morlet wavelet function. An optimal son wavelet function is obtained by minimisation of the wavelet transform entropy. The accuracy of this new technique is confirmed in a numerical example and by applying it to ambient vibration measurements of a bridge excited by traffic.