Inverter fed Induction motor drives are deployed across a variety of industrial and commercial applications. Although the drives in the question are well known for their reliable operation in any type of environment, it becomes an important daunting critical task to have them in continuous operation as per the applications" requirement. Identifying the faulty behavior of power electronic circuits which could lead to catastrophic failures is an attractive proposition. The cost associated with building systems devoted for monitoring and diagnosis is high, however such cost could be justified for the safety-critical systems. Commonly practiced methods for improving the reliability of the power electronic systems are: designing the power circuit conservatively or having parallel redundant operation of components or circuits and clearly these two methods are expensive. An alternative to redundancy is fault tolerant control, which involves drive control algorithm, that in the event of fault occurrence, allows the drive to run in a degraded mode. Such algorithms involve on-line processing of the signals and this requires Digital Signal Processing of the signals. This paper presents the FFT and Wavelet transform techniques for on-line monitoring and analyzing the signals such as stator currents.