In this paper we propose an innovative way of dealing with the design of fault-tolerant control systems. We show how the nonlinear output regulation theory can be successfully adopted in order to design a regulator able to offset the effect of all possible faults which can occur and, in doing so, also to detect and isolate the occurred fault. The regulator is designed by embedding the (possible nonlinear) internal model of the fault. This idea is applied to the design of a fault-tolerant controller for induction motors in presence of both rotor and stator mechanical faults. (C) 2003 Elsevier Ltd. All rights reserved.