A signal processing method and system combining smooth level wavelet pre-processing together with artificial neural networks all in the wavelet domain for signal denoising and extraction. Upon receiving a signal corrupted with noise, an n-level decomposition of the signal is performed using a discrete wavelet transform to produce a smooth component and a rough component for each decomposition level. The n.sup.th level smooth component is then inputted into a corresponding neural network pre-trained to filter out noise in that component by pattern recognition in the wavelet domain. Additional rough components, beginning at the highest level, may also be retained and inputted into corresponding neural networks pre-trained to filter out noise in those components also by pattern recognition in the wavelet domain. In any case, an inverse discrete wavelet transform is performed on the combined output from all the neural networks to recover a clean signal back in the time domain.