The task of robust fault detection and diagnosis of stochastic distribution control (SDC) systems with uncertainties is to use the measured input and the system output PDFs to still obtain possible faults information of the system. Using the rational square-root B-spline model to represent the dynamics between the output PDF and the input, in this paper, a robust nonlinear adaptive observer-based fault diagnosis algorithm is presented to diagnose the fault in the dynamic part of such systems with model uncertainties. When certain conditions are satisfied, the weight vector of the rational square-root B-spline model proves to be bounded. Convergency analysis is performed for the error dynamic system raised from robust fault detection and fault diagnosis phase. Computer simulations are given to demonstrate the effectiveness of the proposed algorithm.