This paper presents a strategy for fault detection and diagnosis (FDD) of HVAC systems involving sensor faults at the system level. Two schemes are involved in the system-level FDD strategy, i.e. system FDD scheme and sensor fault detection, diagnosis and estimation (FDD&E) scheme. in the system FDD scheme, one or more performance indices (PIs) are introduced to indicate the performance status (normal or faulty) of each system. Regression models are used as the benchmarks to validate the Pis computed from the actual measurements. The reliability of the system FDD is affected by the health of sensor measurements. A method based on principal component analysis (PCA) is used to detect and diagnose the sensor bias and to correct the sensor bias prior to the use of the system FDD scheme. Two interaction analyses are conducted. One is the impact of system faults on sensor FDD&E. The other is the impact of corrected sensor faults on the system FDD. It is found that the sensor FDD&E method can work well in identifying biased sensors and recovering biases even if system faults coexist, and the system FDD method is effective in diagnosing the system-level faults using processed measurements by the sensor FDD&E. Crown Copyright (c) 2009 Published by Elsevier B.V. All rights reserved.