The paper investigates maximum possible torque improvement in a two-pole surface permanent magnet synchronous machine (PMSM) with a reduced magnet span, which causes production of highly nonsinusoidal back-EMF. It contains a high third and fifth harmonics, which can be used for the torque enhancement, using stator current harmonic injection. Optimal magnet span is studied first and it is shown that with such a value the machine would be able to develop an insignificantly lower maximum torque than with the full magnet span. Next, field-oriented control (FOC) algorithm, which considers all non-fundamental EMF components lower than the machine phase number, is devised. Using maximum-torque per Ampere (MTPA) principles, optimal ratios between fundamental and all other injected components are calculated and then used in the drive control. The output torque can be in this way increased up to 45% with respect to the one obtainable with fundamental current only. Alternatively, for the same load torque, stator current RMS value can be reduced by 45%. Last but not least, a method for position sensor fault mitigation is introduced. It is based on the alternative use of a back-EMF harmonic for rotor position estimation, instead of the torque enhancement. Experimental verification is provided throughout for all the relevant aspects.