Abstarct: Oil condition monitoring is one of the main methods to maintain of internal combustion engines. In recent years, to identify oil characteristics or oil quality, online sensors have replaced conventional offline oil analyzers. Online oil quality sensor can provide optimally usage of oil, rapid detection of failure and prediction of oil life which designed and manufactured in this dissertation. The principle of the oil quality sensor is baxsed on measurement of oil dielectric capacitance. The sensor was designed to operate in spark ignition engines with oil temperature up to 150 °C. At first, a prototype (conceptual design) of sensor was made to identify effective parameters on accuracy of capacitance measurement. Also, in order to achieve optimal sensor performance, a finite element method used to simulate sensor performance along with design of experiment (DOE) methods. After parts manufacturing, the sensor was tested using offline method. baxsed on offline test results, it was determined that the presence of a sensor board with a fixed position close to the sensor was necessary and affected on results. So electrical board was assembled for online tests. Online tests result show that only the oil temperature can effect on sensor output up to 3.3%, which can reduce this error to 0.3% using temperature correction factor. In addition, the sensor can detect minimum amount of water pollution, which is 0.02% by volume of oil that is acceptable compared to another industrial sensor. The results show that sensor performance in detection of oil failure is rapid enough.