This paper presents an extension theory-based assessment method to perform fault diagnosis for inverters in motor driving systems. First, a three-level neutral-point clamped (NPC) inverter is created using the PSIM software package to simulate faults for any power transistor in the NPC-type inverter. Fast Fourier transformation is used to transform the line current signals in the time domain into a spectrum in the frequency domain for analysis of the corresponding spectrum of features of the inverter for faults with different power transistors. Then, the relationships between fault types and specific spectra are established as characteristics for the extension assessment method, which is then used to create a smart fault diagnosis system for inverters. Fault-tolerant control (FTC) is used here when the rated output of a faulty inverter is decreased in order to maintain balanced output in three phases by changing the framework of the transistor connection. This is performed to reinforce the reliability of the inverter. Finally, by the simulation and experimental results, the feasibility of the proposed smart fault diagnosis system is confirmed. The proposed fault diagnosis method is advantageous due to its minimal use of data and lack of a learning process, which thereby reduces the fault diagnosis time and makes the method easily used in practice. The proposed fault-tolerant control strategy allows both online and smooth switching in the wiring structure of the inverter.