Electric motors are used widely in industrial manufacturing plants. Bearing faults, insulation faults, and rotor faults are the major causes of electric motor failures. Based on the line current analysis, this dissertation mainly deals with the low cost incipient fault detection of inverter-fed driven motors. Basically, low order inverter harmonics contributions to fault diagnosis, a motor drive embedded condition monitoring method, analysis of motor fault signatures in noisy line current, and a few specific applications of proposed methods are studied in detail. First, the effects of inverter harmonics on motor current fault signatures are analyzed in detail. The introduced fault signatures due to harmonics provide additional information about the motor faults and enhance the reliability of fault decisions. It is theoretically and experimentally shown that the extended fault signatures caused by the inverter harmonics are similar and comparable to those generated by the fundamental harmonic on the line current. In the next chapter, the reference frame theory is proposed as a powerful toolbox to find the exact magnitude and phase quantities of specific fault signatures in real time. The faulty motors are experimentally tested both offline, using data acquisition system, and online, employing the TMS320F2812 DSP to prove the effectiveness of the proposed tool. In addition to reference frame theory, another digital signal processor (DSP)-based phasesensitive motor fault signature detection is presented in the following chapter. This method has a powerful line current noise suppression capability while detecting the fault signatures. It is experimentally shown that the proposed method can determine the normalized magnitude and phase information of the fault signatures even in the presence of significant noise. Finally, a signal processing based fault diagnosis scheme for on-board diagnosis of rotor asymmetry at start-up and idle mode is presented. It is quite challenging to obtain these regular test conditions for long enough time during daily vehicle operations. In addition, automobile vibrations cause a non-uniform air-gap motor operation which directly affects the inductances of electric motor and results quite noisy current spectrum. The proposed method overcomes the challenges like aforementioned ones simply by testing the rotor asymmetry at zero speed.