An isolation transformer is designed to address the problems associated with referencing its internal shields to ground. It is constructed with two isolated Faraday shields between the primary and secondary windings.

When properly installed, the shield, which is closest to the primary winding, is connected to the common power supply ground and the shield closest to the secondary winding is connected to the shield of the circuit to be isolated. The use of two shields in the construction of the isolation transformer diverts high frequency noise, which would normally be coupled across the transformer to the grounds of the circuit in which they occur.

The two shields provide more effective isolation of the primary and secondary circuits by also isolating their grounds. The isolation transformer adds a third capacitance between the two Faraday shields, which may allow coupling of high frequency noise between the system grounds. However, increasing the separation between the two Faraday shields normally minimizes this third capacitance. Additionally, the dielectric effect of the shields plus the increased separation of the  windings significantly reduce the inter-capacitance between the windings.

Isolation transformers are extensively used in medical equipment, telecommunication equipment, remote control equipment, computers & peripherals, CNC machines, analytical instruments etc.