The investigation described in this article aims at developing a Bayesian‐based approach for probabilistic assessment of rail health condition using acoustic emission monitoring data. It comprises the following three phases: (i) formulation of a frequency‐domain structural health index (SHI), via a linear transformation method, tailored to damage‐sensitive frequency bandwidth; (ii) establishment of data‐driven reference models, using Bayesian regression about the real and imaginary parts of the SHI derived with monitoring data from the intact rail; and (iii) quantitative evaluation of discrimination between the new observations representative of current rail health condition and the baseline model predictions in terms of Bayes factor. If the deviation of the new observations from the predictions is within an acceptable tolerance, no damage is flagged, and the new data are further used to update and refine the reference models. If the observations deviate substantially from the model predictions in a probabilistic sense, damage is signaled, damage severity is quantified, and damage location determined. The proposed approach is examined by using field monitoring data acquired from an instrumented railway turnout, and the coincidence between the assessment results and the actual health conditions demonstrates its effectiveness in damage detection, localization, and quantification.