The problem of discrete-time model identification of industrial processes with time delay was investigated. An iterative and separable method is proposed to solve this problem, that is, the rational transfer function model parameters and time delay are alternately fixed to estimate each other. The instrumental variable technique is applied to guarantee consistent estimation against measurement noise. A noteworthy merit of the proposed method is that it can handle fractional time delay estimation, compared to existing methods commonly assuming that the time delay is an integer multiple of the sampling interval. The identifiability analysis for time delay is addressed and correspondingly, some guidelines are provided for practical implementation of the proposed method. Numerical and experimental examples are presented to illustrate the effectiveness of the proposed method.