This paper develops a fault diagnostic system to monitor the health of the lateral motion sensors on an instrumented highway vehicle. The fault diagnostic system utilizes observer design with the observer gains chosen so as to ensure that each sensor failure causes estimation errors to grow in an unique direction. The performance of the fault diagnostic system is verified through extensive experimental results obtained from an instrumented truck called the "Safetruck". The fault diagnostic system is able to monitor the health of a GPS system, a gyroscope and an accelerometer on the Safetruck. It can correctly detect a failure in any one of the three sensors and accurately identify the source of the failure.