A novel method called natural excitation technique-time domain decomposition (NExT-TDD) algorithm is presented in this paper for structural mode shape identification under ambient excitation. The primary principle of time domain decomposition (TDD) algorithm is illustrated, and subsequently its suitable condition is generalized from the free vibration response to more common conditions. The unified theoretical model of natural excitation technique (NExT) is proposed, and then it is proved that a new function defined using structural displacement cross-correlation functions under white noise excitations has the same mathematical structure as impulse response function and consequently satis-fies the generalized suitable conditions of TDD algorithm above. Then the NExT-TDD algorithm which combines NExT with TDD using digital filters is presented to identify mode shapes of structures subjected to ambient excitations. The results of simulation experiments verify the effectiveness of the method presented in this paper.