Acoustic emission (AE) has been used extensively for structural health monitoring based on the stress waves generated due to evolution of cracks in concrete structures. A major concern while using AE features is that each of them responds differently to the fractures in concrete structures. To tackle this problem, Mahalanobis—Taguchi system (MTS) is utilized, which fuses the AE feature space to provide comprehensive and reliable degradation indicator with a feature selection method to determine useful features. Further, majority of the existing investigations gave little attention to naturally occurring cracks, which are actually more difficult to detect. In this study, a novel degradation indicator (DI) based on AE features and MTS is proposed to indicate the performance degradation in reinforced concrete beams. The experimental results confirm that the MTS can successfully distinguish between healthy and faulty conditions. To alleviate the noise from the DI obtained through MTS, a noise-removal strategy based on Chebyshev inequality is suggested. The results show that the proposed DI based on AE features and MTS is capable of detecting early stage cracks as well as development of damage in concrete beams.