In this paper, a sensorless induction motor (IM) drive using speed observer system is presented. The system includes load torque computation for gear fault detection. Nonlinear control method is adopted for controlling the motor over a wide speed range. An LC filter for smoothing current and voltage waveforms is used at the output of the voltage inverter. The use of filter imposes more building of the used observer to avoid using additional current and voltage sensors. An analysis of the motor load torque makes it possible to detect existing problems in the load. The developed algorithm was verified by simulation and experiments for a 1.5 kW induction motor drive system.