© 2020 by the authors. Licensee MDPI, Basel, Switzerland. Transportation has become a key bottleneck which restricts economic development in Western China. However, during the construction of the western railway, the permafrost problem has plagued railway construction on the Qinghai–Tibet Plateau, and has not yet been resolved. Accurately identifying permafrost by geophysical method is the most effective means to solve this problem. However, the mountainous and plateau terrain in Western China impose huge challenges in collecting geophysical data. To address this issue, this paper proposes an airborne transient electromagnetic method to collect geophysical electromagnetic data to identify permafrost in the mountains and plateaus of Western China. Based on Maxwell’s equations, the forward model of the airborne electromagnetic was derived, and the finite element method was used to calculate the two-dimensional (2D) space electromagnetic responses of different permafrost geo-electrical models. Furthermore, a coupling function was constructed to estimate the distribution of the resistivity of the permafrost by the least-squares fitting algorithm. Comparison between inversion resistivity distribution and the geo-electrical model showed that the proposed airborne transient electromagnetic method was valid for exploring the permafrost in the mountains and the Qinghai–Tibet Plateau in Western China.