Compared with other components, actuator fault has a higher probability of occurrence in semi-active suspension with magneto-rheological (MR) damper, which will lead to the safety and reliability of the system. Hence, the fault diagnosis and fault-tolerant methods of semi-active vehicle suspension system with MR damper are investigated in this paper to deal with the fault of MR damper. Firstly, the quarter-vehicle suspension system model is established. Secondly, an unknown input observer (UIO) with strong robustness and simple structure is employed to detect the fault of MR damper; meanwhile, the correlation coefficient method based on the system residuals is used to isolate the fault of MR damper. Lastly, the skyhook fault-tolerant controller (FTC) is designed to compensate the system with fault application. The simulation results under sine excitation, random excitation and bump excitation show that the performance of the proposed FTC always outweigh that of without fault-tolerant when MR damper occurs fault.