Peak detection is ubiquitous in the analysis of spectral data. While many noise-filtering algorithms and peak identification algorithms have been developed, recent work [P. Du, W. Kibbe, and S. Lin, Bioinformatics 22, 2059 (2006); A. Wee, D. Grayden, Y. Zhu, K. Petkovic-Duran, and D. Smith, Electrophoresis 29, 4215 (2008)] has demonstrated that both of these tasks are efficiently performed through analysis of the wavelet transform of the data. In this paper, we present a wavelet-based peak detection algorithm with user-defined parameters that can be readily applied to the application of any spectral data. Particular attention is given to the algorithm's resolution of overlapping peaks. The algorithm is implemented for the analysis of powder diffraction data, and successful detection of Bragg peaks is demonstrated for both low signal-to-noise data from theta-theta diffraction of nanoparticles and combinatorial x-ray diffraction data from a composition spread thin film. These datasets have different types of background signals which are effectively removed in the wavelet-based method, and the results demonstrate that the algorithm provides a robust method for automated peak detection.