To meet the high safety and reliability requirements of today’s power transformers, advanced online diagnosis systems using seamless communications and information technologies have been developed, which potentially presents growing cybersecurity concerns. This paper provides practical attack models breaching a power transformer diagnosis system (PTDS) in a digital substation by advanced persistent threats (APTs) and proposes a security testbed for developing future security built-in PTDS against APTs. The proposed security testbed includes: 1) a real-time substation power system simulator, 2) a real-time cyber system, and 3) penetration testing tools. Several real cyber-attacks are generated and the impact on a digital substation are provided to validate the feasibility of the proposed security testbed. The proposed PTDS-focused security testbed will be used to develop self-safe defense strategies against malicious cyber-attacks in a digital substation environment.