In this paper, the adaptive time delay estimation algorithm based on wavelet transform is presented by combing the multiresolution wavelet analysis and LMS algorithm. Furthermore, the validity of this algorithm is studied to estimate the time delay of the chirp signal which is under the chaotic environment. The experimental result shows that the time delay could be estimated precisely despite the SCR (Signal to Chaotic signal Ratio) below -40dB. When this algorithm is applied to the chaotic background which includes Gaussian white noise (SNR=-5dB and SCR=-12dB), the time delay could also be estimated precisely, but the performance of the algorithm drops.