Multimodal single-cell profiling methods that measure protein expression with oligo-conjugated antibodies hold promise for comprehensive dissection of cellular heterogeneity, yet the resulting protein counts have substantial technical noise that can mask biological variations. Here we integrate experiments and computational analyses to reveal two major noise sources and develop a method called "dsb" (denoised and scaled by background) to normalize and denoise droplet-based protein expression data. We discover that protein-specific noise originates from unbound antibodies encapsulated during droplet generation; this noise can thus be accurately estimated and corrected by utilizing protein levels in empty droplets. We also find that isotype control antibodies and the background protein population average in each cell exhibit significant correlations across single cells, we thus use their shared variance to correct for cell-to-cell technical noise in each cell. We validate these findings by analyzing the performance of dsb in eight independent datasets spanning multiple technologies, including CITE-seq, ASAP-seq, and TEA-seq. Compared to existing normalization methods, our approach improves downstream analyses by better unmasking biologically meaningful cell populations. Our method is available as an open-source R package that interfaces easily with existing single cell software platforms such as Seurat, Bioconductor, and Scanpy and can be accessed at "dsb [ https://cran.r-project.org/package=dsb ]".