Instrument fault detection and estimation is important for process surveillance, control, and safety functions of a power plant. The method incorporates the dual-hypotheses decision procedure and system characterization using data-driven time-domain models of signals representing the system. The multivariate models can be developed on-line and can be adapted to changing system conditions. For the method to be effective, specific subsystems of pressurized water reactors were considered, and signal selection was made such that a strong causal relationship exists among the measured variables. The technique is applied to the reactor core subsystem of the loss-of-fluid test reactor using in-core neutron detector and core-exit thermocouple signals. Thermocouple anomalies such as bias error, noise error, and slow drift in the sensor are detected and estimated using appropriate measurement models.