A system for condition monitoring and fault diagnosis of a machine comprising: a control system operably coupled to the machine, the control system has controllers structurally implemented in a hierarchical arrangement in which each respective controller has a different control level in accordance with a hierarchical position of the respective controller in the hierarchical arrangement, each controller comprising a processor and a memory (210, 215, 220) so that at least one controller in each control level of the hierarchical arrangement of controllers is configured to command a predetermined function of one or more machine components, characterized in that the hierarchically distributed controllers are configured to implement: a data collection function that is configured to acquire time histories of selected variables generated by the predetermined function of the one or more machine components controlled by one of the at least one controller in each control level of the hierarchical arrangement of controllers according to specified sampling parameters; a preprocessing function that is configured to calculate, using predetermined dynamic mathematical models of the machine, specified characteristics of each of the time histories individually; an analysis function configured for evaluating the specified characteristics of each of the individual time histories to produce one or more hypotheses of a condition of the one or more machine components; and a reasoning function configured for determining the condition of the one or more machine components from the one or more hypotheses, wherein at least one of the functions (105, 110, 115, 120) is configured to reside in a higher control level of the hierarchical arrangement of controllers, in accordance with an iterative hierarchy relationship of the functions (105, 110, 115, 120), such that progressively higher control level controllers are configured to process the condition monitoring and fault diagnosis data at a control level controller that includes processing capability to process the condition monitoring and fault diagnosis data. a control system operably coupled to the machine, the control system has controllers structurally implemented in a hierarchical arrangement in which each respective controller has a different control level in accordance with a hierarchical position of the respective controller in the hierarchical arrangement, each controller comprising a processor and a memory (210, 215, 220) so that at least one controller in each control level of the hierarchical arrangement of controllers is configured to command a predetermined function of one or more machine components, characterized in that the hierarchically distributed controllers are configured to implement: a data collection function that is configured to acquire time histories of selected variables generated by the predetermined function of the one or more machine components controlled by one of the at least one controller in each control level of the hierarchical arrangement of controllers according to specified sampling parameters; a preprocessing function that is configured to calculate, using predetermined dynamic mathematical models of the machine, specified characteristics of each of the time histories individually; an analysis function configured for evaluating the specified characteristics of each of the individual time histories to produce one or more hypotheses of a condition of the one or more machine components; and a reasoning function configured for determining the condition of the one or more machine components from the one or more hypotheses, a data collection function that is configured to acquire time histories of selected variables generated by the predetermined function of the one or more machine components controlled by one of the at least one controller in each control level of the hierarchical arrangement of controllers according to specified sampling parameters; a preprocessing function that is configured to calculate, using predetermined dynamic mathematical models of the machine, specified characteristics of each of the time histories individually; an analysis function configured for evaluating the specified characteristics of each of the individual time histories to produce one or more hypotheses of a condition of the one or more machine components; and a reasoning function configured for determining the condition of the one or more machine components from the one or more hypotheses, wherein at least one of the functions (105, 110, 115, 120) is configured to reside in a higher control level of the hierarchical arrangement of controllers, in accordance with an iterative hierarchy relationship of the functions (105, 110, 115, 120), such that progressively higher control level controllers are configured to process the condition monitoring and fault diagnosis data at a control level controller that includes processing capability to process the condition monitoring and fault diagnosis data.