Abstract: With oil & gas exploration and development going ever deeper, drilling technologies are gradually advancing towards deep and ultra-deep wells and slim holes, which puts forward high requirements for the processing of pulse signals of drilling fluid. By analyzing the principle of pulse position modulation coding, a pulse signal processing method was proposed for drilling fluid based on optimal variational mode decomposition (VMD) and cross-correlation. And the feasibility of the method was later verified by using pulse signals of drilling fluid collected from a shale oil well in the northern Jiangsu region. Through the optimal VMD algorithm, the useful signals were effectively extracted under low signal-to-noise ratio conditions; based on the synchronization correlator, the de-noised signals were cross-correlated to reliably calculate the starting position of the data frame; according to the data block correlator, the waveforms in the data block were cross-correlated to accurately acquire the code values. Compared with the traditional pulse signal processing methods for drilling fluid, the proposed method exhibits characteristics of high reliability and low bit error rate, and it can well satisfy the needs of pulse signal processing for drilling fluid in complex wellbore environments.