An integrated control and diagnostics system for a controlled system (e.g., a motor) includes a diagnostics module and a controller coupled to the motor. To optimize operation, the diagnostics information signal is used to modify the control provided by the controller as required. Moreover, the output of the control module is coupled to the diagnostics module so that the health assessment made by the diagnostics module can be based at least in part on the output of the controller. The invention uses a model-based diagnostics approach that allows integration of control algorithms with diagnostics algorithms to intelligently trade off optimizing performance to avert or accommodate failures, and to meet performance requirements in a wide range of applications.