Abstract A health monitoring system for a transmission shaft is proposed. The solution is based on the real-time identification of the physical characteristics of the transmission shaft i.e. stiffness and damping coefficients, by using a physical oriented model and linear recursive identification. The efficacy of the suggested condition monitoring system is demonstrated on a prototype transient engine testing facility equipped with a transmission shaft capable of varying its physical properties. Simulation studies reveal that coupling shaft faults can be detected and isolated using the proposed condition monitoring system. Besides, the performance of various recursive identification algorithms is addressed. The results of this work recommend that the health status of engine dynamometer shafts can be monitored using a simple lumped-parameter shaft model and a linear recursive identification algorithm which makes the concept practically viable.