This paper presents a novel approach for the fault diagnosis of actuators in known deterministic dynamic systems by using an adaptive observer technique. Systems without model uncertainty are initially considered, followed by a discussion of a general situation where the system is subjected to either model uncertainty or external disturbance. Under the assumption that the system state observer can be designed such that the observation error is strictly positive real (SPR), an adaptive diagnostic algorithm Is developed to diagnose the fault, and a modified version is proposed for the general system to improve robustness, The method is demonstrated through its application to a simulated second-order system.