The paper proposes an original, comprehensive, and methodically consistent graph theory-based approach to the description of the diagnosed process and the diagnosing system. The main baseline of the presented approach is in the dichotomous approach to diagnosing. It involves a separate description of both the process and the diagnostic system. This approach reflects the practice of designing implementable diagnostic systems. Thus, it can be seen as a proposal of a new, alternative, and, at the same time, flexible design procedure with great potential for applications. The primary motivation behind it was an attempt to circumvent the numerous limitations of well-known and well-established diagnosis approaches proposed by the communities working on fault detection and isolation (FDI) and artificial intelligence theories for diagnosis (DX). Accordingly, the paper identifies and provides an extensive discussion and a critical analysis of the existing limitations. Numerous examples and references to practical applications of the approach are indicated.