Time delay estimation is often used in wireless positioning and ranging. In multipath environment, there will be problems of positioning accuracy degradation and time delay estimation distortion. To solve this problem, a time delay estimation algorithm based on orthogonal frequency division multiplexing (OFDM) frequency domain subspace smoothing on multiple signal classification (MUSIC) is proposed. First, the signal source is modulated by OFDM and the data stream is formed by using subcarriers. Then, the covariance matrix of data stream is bidirectional smoothed in frequency domain to make the best use of the data information of signal subspace. In the end, the signal or noise subspace orthogonality of MUSIC algorithm is used to detect the spectrum peaks one by one, and the pseudo spectrum is normalized to obtain more accurate time delay information. Computer simulation shows that the proposed algorithm has higher spectral peak and narrower sidelobe than the eigen space MUSIC algorithm, and has no error estimation interference. When the ranging signal interval is close, it can effectively solve the problem of estimation distortion. the minimum time delay interval can be close to 6ns, and the resolution is strong. At the estimation performance level, the estimation accuracy can be close to 3ns under the complex condition of signal-to-noise ratio of -15dB, which verifies the effectiveness and superiority of the improved algorithm.