For the problem of multiple sensor fault detection and reconstruction in the forklift fault-tolerant control system, a sliding mode observer (SMO) with adaptive regulation law is proposed. Based on the three-degree-of-freedom (3-DOF) model of forklift, a linear state equation with output disturbance is designed as its equivalent sensor fault model. The sensor fault is converted into an actuator fault by defining an auxiliary state variable as an output signal filter. Then the SMO-based method of sensor fault detection and reconstruction is given. Without knowing the upper bound of an unknown fault, an adaptive sliding mode observer (ASMO) can also be effective through the adaptive algorithm. Finally, experimental results further verify the effectiveness of the method, and provide a foundation for forklift fault-tolerant control.