With the acceleration of urbanization, urban road congestion is becoming more and more serious. The application of intelligent transportation system has become an effective means to alleviate traffic pressure. As an important part of intelligent transportation, intelligent traffic guidance system can guide vehicles to drive reasonably through real-time traffic information, reduce congestion and improve road traffic efficiency. This paper first introduces the research background and current challenges of intelligent traffic guidance system, and then optimizes the overall structure of traffic guidance system by using algorithm optimization in intelligent traffic guidance system. Then, the effectiveness of optimization algorithm and system performance improvement are verified by experiments, including improvements in traffic data update efficiency, processing time and other aspects. Finally, the research results are summarized, and the existing deficiencies and future improvement directions are pointed out. The experimental results show that the intelligent traffic guidance system after algorithm optimization can significantly improve the processing speed of traffic data, which ranges from 201 m/s to 363 m/s, which can effectively reduce road congestion and improve the overall operation efficiency of urban traffic.