With people s attention to information security, the research on authentication encryption algorithm has become a very important branch of cryptography in recent years. It is widely used in data encryption, message authentication, authentication and key management. In the network of large-scale communication nodes, there are a large quantity of network nodes and a variety of devices. The traditional PKI cryptosystem has the problems of certificate management difficulty and resource waste. Based on the research of block cipher algorithm, this article discusses its application in the design of terminal identity authentication system, and designs a node two-way authentication scheme based on identity encryption. The simulation results show that the block cipher algorithm proposed in this article can get 95.82\%, accuracy, which is higher than the contrast algorithm. Authentication and encryption algorithm based on block cipher plays an important role in authentication and encryption algorithm because of its fast implementation speed of software and hardware and easy standardization. The research shows that the algorithm proposed in this article is superior to other algorithms in the application of terminal identity authentication system. It provides a new solution for related research.