Abstarct: Health monitoring of rotating equipment is significantly important for maintenance of mechanical systems such as jet engines, internal combustion engine and turbines. Ferrous particles in lubricating oil from wear of engine components can show engine failure, which can change on physical and chemical properties of polluted oil. So condition monitoring of concentration and size of these particles are useful for prediction and also diagnostic of IC engines. This thesis is about the design and manufacturing of an inductive sensor for detecting iron debris particles. At first stage, two different architecture of sensors were proposed. The first sensor has four coils and the second one has three coils. The diameter of oil gallery in first sensor is twice bigger than the second one. baxsed on results, the first sensor can be used either in-line or out of line, but the second one can only be used out of line, due to lower capability of mass flow rate. To find the best sensitivity of sensor, offline optimization were performed using design of experiment (DOE) method. Effective parameters including frequency, input voltage, connectivity type and input resistance were obtained. Also offline tests showed that second sensor has better sensitivity, so this sensor selected for next online tests. To simulate the actual conditions in engine oil circuit and perform online experiments, a hydraulic circuit was manufactured that can test engine oil containing specified iron particles. Functional tests like sealing, high temperature and high pressure were performed on sensors using hydraulic circuit. Ferrous particles were classified using ISO 16232 standard and polluted oil packages with specified size and density of iron particles were prepared. The second sensor can detect ferrous particles separately and cumulatively. Separate detection of particles was done using analyzing the results of sensor output, and cumulative detection was done by monitoring self-inductive capacity. Results showed that iron particles with a minimum 125 μm diameter can be detected individually by second sensor. In addition second sensor can also detect polluted oil with more than 150 ppm ferrous particles which is preliminary point of engine failure.