Multiple techniques continue to be simultaneously utilized in the condition monitoring and fault detection of electric machines, as there is still no single technique that provides an all-round solution to fault finding in these machines. Having various machine fault-detection techniques is useful in allowing the ability to combine two or more in a manner that will provide a more comprehensive application-dependent condition-monitoring solution; especially, given the increasing role these machines are expected to play in man’s transition to a more sustainable environment, where many more electric machines will be required. This paper presents a novel non-invasive optical fiber using a stray flux technique for the condition monitoring and fault detection of induction machines. A giant magnetostrictive transducer, made of terfenol-D, was bonded onto a fiber Bragg grating, to form a composite FBG-T sensor, which utilizes the machines’ stray flux to determine the internal condition of the machine. Three machine conditions were investigated: healthy, broken rotor, and short circuit inter-turn fault. A tri-axial auto-data-logging flux meter was used to obtain stray magnetic flux measurements, and the numerical results obtained with LabView were analyzed in MATLAB. The optimal positioning and sensitivity of the FBG-T sensor were found to be transverse and 19.3810 pm/μT, respectively. The experimental results showed that the FBG-T sensor accurately distinguished each of the three machine conditions using a different order of magnitude of Bragg wavelength shifts, with the most severe fault reaching wavelength shifts of hundreds of picometres (pm) compared to the healthy and broken rotor conditions, which were in the low-to-mid-hundred and high-hundred picometre (pm) range, respectively. A fast Fourier transform (FFT) analysis, performed on the measured stray flux, revealed that the spectral content of the stray flux affected the magnetostrictive behavior of the magnetic dipoles of the terfenol-D transducer, which translated into strain on the fiber gratings.