Background: Electroencephalography (EEG) may be used as an objective diagnosis tool for diagnosing various disorders. Recently, source localization from EEG is being used in the analysis of real-time brain monitoring applications. However, inverse problem reduces the accuracy in EEG signal processing systems. Objectives: This paper presents a new method of EEG source localization using variational mode decomposition (VMD) and standardized the low resolution brain electromagnetic tomography (sLORETA) inverse model. The focus is to compare the effectiveness of the proposed approach for EEG signals of depression patients. Method: As the first stage, real EEG recordings corresponding to depression patients are decomposed into various mode functions by applying VMD. Then, closely related functions are analyzed using the inverse modelling-based source localization procedures such as sLORETA. Simulations have been carried out on real EEG databases for depression to demonstrate the effectiveness of the proposed techniques. Results: The performance of the algorithm has been assessed using localization error (LE), mean square error and signal to noise ratio output corresponding to simulated EEG dipole sources and real EEG signals for depression. In order to study the spatial resolution for cortical potential distribution, the main focus has been on studying the effects of noise sources and estimating LE of inverse solutions. More accurate and robust localization results show that this methodology is very promising for EEG source localization of depression signals. Conclusion: It can be said that proposed algorithm efficiently suppresses the influence of noise in the EEG inverse problem using simulated EEG activity and EEG database for depression. Such a system may offer an effective solution for clinicians as a crucial stage of EEG pre-processing in automated depression detection systems and may prevent delay in diagnosis.