Isolation transformers with electrostatic shields are used for power supplies for sensitive equipment such as computers or laboratory instruments. 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. 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.