A novel diagnosis method based on the rotor slip is proposed in the paper to correctly detect current and speed sensor failures during the induction motor drive (IMD) operation. In order to enhance reliability and avoid confusion in the diagnosis algorithm due to the influence of measured signal quality, each fault type is determined in a priority order defined by the diagnosis method. Based on the features of the IMD applying the field-oriented control (FOC) technique, an innovative model uses the measured currents and reference speed as the input signals to estimate the rotor slip for the current sensor fault detection. After verifying the quality of the feedback of the current signals, a speed sensor fault function is continued, and performs according to relations among the reference speed, estimated speed based on the sliding mode method, and measured rotor speeds. Finally, the estimated quantities are selected to replace the wrong measured current or speed signals. The feasibility of the proposed approach is verified by simulations using Matlab-Simulink software as well as by practical experiments using an IMD prototype with a rated power of 2.2 kW and a DSC-TMS320F28335-based control system. The obtained simulation and experimental results demonstrated the feasibility, effectiveness, and reliability of the proposed diagnosis technique in detecting sensor failures and maintaining the stable operation of the IMD.