This paper presents a new technique for fault diagnosis and estimation of unknown inputs in a class of nonlinear systems. The novelty of the approach is governed by the use of two interconnected sliding mode observers. The first of the two observers is used for fault diagnosis and the second is used for the reconstruction of unknown inputs. The two observers exchange their respective reconstructed signals online and in real time. Conditions for the convergence are derived. The design is such that the state trajectories do not leave the sliding manifold even in presence of unknown inputs and faults. This allows for faults and unknown inputs to be reconstructed based on information retrieved from the equivalent output error injection signals.