The operating life of power transformers is determined by the insulation state of the transformer insulating materials, which has been widely recognized. Herein, it is a new attempt to diagnose the state of the transformer mineral insulating oil by the terahertz time-domain spectroscopy (THz-TDS), taking advantage of its high signal-to-noise ratio and fast, accurate, and stable data acquisition characteristics. First, the THz time-domain waveforms of mineral insulating oils with different insulation states prepared by the accelerated thermal aging method were measured. Second, the Fabry-Perot (F-P) effect of instruments and container is eliminated using the improved electromagnetic wave transfer function. Then, the THz spectral parameters of insulating oils, such as absorption coefficient and refractive index, can be calculated. Meanwhile, the dielectric properties of insulating oils in the terahertz region are obtained. Finally, compared with traditional physicochemical diagnostic indicators, the results preliminarily prove that THz-TDS technology can effectively evaluate the state of the mineral insulating oil.