This paper presents the theoretical analysis and experimental verification of a direct fault harmonic identification approach in a converter-fed electric drive for automated diagnosis purposes. On the basis of the analytical model of the proposed real-time direct fault diagnosis, the fault-related harmonic component is calculated using recursive DFT (RDFT) and Goertzel DFT (GDFT), applied instead of the full spectrum calculations required in the most popular FFT algorithm. The simulation model of an inverter sensorlessly controlled induction motor drive is linked with the induction machine rotor fault model for testing the sensitivity of the GDFT- and RDFT-based fault diagnosis to state variable estimation errors. According to the presented simulation results, the accuracy of the direct identification of a fault-related harmonic is sensitive to the quality of fault harmonic frequency estimation. The sensitivity analysis with respect to RDFT and GDFT algorithms is included. Based on the experimental setup with a sensorlessly controlled induction motor drive with the investigated rotor fault, fault diagnosis algorithms were implemented in the microprocessor by integration with the control system in one microcontroller and experimentally verified. The RDFT and GDFT approach has shown accurate and fast direct automated fault identification at a significantly decreased number of arithmetical operations in the microcontroller, which is convenient for the frequency-domain fault diagnosis in electric drives and supports fault-tolerant control system implementation.