The monitoring of machine conditions is very important from the viewpoints of productivity, economic benefits, and maintenance. Several techniques have been proposed in which sensors are the key to providing relevant information to verify the system. Recently, the smart sensor concept is common, in which the sensors are integrated with a data processing unit executing dedicated algorithms used to generate meaningful information about the system in situ. Additionally, infrared thermography has gained relevance in monitoring processes, since the new infrared cameras have more resolution, smaller dimensions, reliability, functionality, and lower costs. These units were firstly used as secondary elements in the condition monitoring of machines, but thanks to modern techniques for data processing, the infrared sensors can be used to give a first, or even a direct, diagnosis in a nonintrusive way in industrial applications. Therefore, in this manuscript, the structure and development of an infrared-thermography-based smart sensor for diagnosing faults in the elements associated with induction motors, such as rolling bearings and the gearbox, is described. The smart sensor structure includes five main parts: an infrared primary sensor, a preprocessing module, an image processing module, classification of faults, and a user interface. The infrared primary sensor considers a low-cost micro thermal camera for acquiring the thermal images. The processing modules and the classification module implement the data processing algorithms into digital development boards, enabling smart system characteristics. Finally, the interface module allows the final users to require the smart sensor to perform processing actions and data visualization, with the additional feature that the diagnosis report can be provided by the system. The smart sensor is validated in a real experimental test bench, demonstrating its capabilities in different case studies.