The invention discloses a method and a system for identifying and classifying paper money. By utilizing the method and the system, a sample signal degradation model meeting the application requirements is established through using a statistical method by utilizing a large number of existing reliable samples easy to obtain, states of the paper money with brand new color, eight to nine into new color, seven to eight into new color, below seven into new color, varying degrees of soiling, varying degrees of mutilation, varying degrees of cracks and fold existing in regions, then the classifier study is carried out, a to-be-identified sample is classified and identified, and therefore, a classifying result is accurately obtained, and the cost and the efficiency for developing a paper money identifying product are also reduced.