The embodiment of the invention discloses a banknote identification method and device. The method comprises a step of selecting upper and lower group characteristic areas in the front grayscale image of a banknote, wherein each group of the characteristic areas is formed by a left characteristic area and a right characteristic area, a step of searching a characteristic pixel in the left characteristic area and the right characteristic area respectively, a step of determining the regional representative row coordinates of the left characteristic area and the right characteristic area according to a searching result, a step of determining the characteristic identifications of the upper group characteristic area and the lower group characteristic area according to the regional representative row coordinates, and a step of identifying the type of the banknote according to the characteristic identifications. According to the banknote identification method and device, a problem that a banknote type can not be accurately identified by an existing banknote identification method when three types of small denomination Iran banknotes with similar sizes has small area fouling is solved, and the banknote type identification accuracy of the small denomination Iran banknotes is improved.