This thesis presents the design of a fault detection and diagnosis system for the T700 helicopter engine. Fault refers to a malfunction that degrades the performance of a system. Fault parameter estimation approach has been followed to accomplish this task along with the hypothesis testing for isolation purposes. Fault detection and diagnosis modules have been written in FORTRAN and run on-line with the engine simulation. Fault detection and diagnosis system has been tested for sensor bias, sensor multiplicative fault and bias in the actuation signal. The results of these experiments are displayed at the end.