We introduce and demonstrate the use of wavelet-filter-based processing in a joint transform correlator for achieving high-quality target discrimination. The inherent frequency localization characteristic of these filters offers high discrimination in correlation for lookalike targets. Results obtained from simulation and experimental studies validate this fact. Wavelet filters are generated and applied to the joint power spectrum through fast digital processing and are displayed onto a spatial light modulator. The correlation results are analyzed for target discrimination. The hybrid experimental setup combines the speed of optical processing with the flexibility of digital processing to realize such a technique in real time.