Assessing the functional quality of an engine lubricant through real-time sensing could pave the way for development of comprehensive engine health monitoring systems. In this study, a permittivity-based, commercial off-the-shelf (COTS) oil quality sensor was implemented in the lubricant flow of a diesel engine after detailed evaluation on a benchtop test facility. The sensor was mounted on the oil filter housing of the engine in the post-filter oil flow, and its implementation required no modifications to the engine block. Simultaneously, the lubricant flow was visualized by incorporating a novel test cell in the oil flow path. Both the sensor assembly and the flow visualization cell were fully characterized on the benchtop facility prior to implementation on the engine. In these experiments, fresh and used samples of the engine’s recommended oil were tested, and the sensor’s oil quality measurements showed noticeable differences between the engine and benchtop studies, a feature attributable to the observed presence of aeration intrinsic to the engine oil flow. These results prove that the adaptation of permittivity-based sensors for effective real-time engine lubricant quality monitoring will require comparative assessment of oil quality measurements in aerated and nonaerated flow fields.