This paper deals with an application of wavelets for feature extraction and classification of machine faults in a real-world machine data analysis environment. We have utilized informative wavelet algorithm to generate wavelets and subsequent coefficients that are used as feature variables for classification and diagnosis of machine faults. Informative wavelets are classes of functions generated from a given analyzing wavelet in a wavelet packet decomposition structure in which for the selection of best wavelets, concepts from information theory i.e. mutual information and entropy are utilized. Training data are used to construct probability distributions required for the computation of the entropy and mutual information. In our data analysis, we have used machine data acquired from a single cylinder engine under a series of induced faults in a test environment. The objective of the experiment was to evaluate the performance of the informative wavelet algorithm for the accuracy of classification results using a real-world machine data and to examine to what the extent the results were influenced by different analyzing wavelets chosen for data analysis. Accuracy of classification results as related to the correlation structure of the coefficients is also discussed in the paper.