Induction machines (IMs) are commonly used in various industrial sectors. It is essential to recognize IM defects at their earliest stage so as to prevent machine performance degradation and improve production quality and safety. This work will focus on IM broken rotor bar (BRB) fault detection, as BRB fault could generate extra heating, vibration, acoustic noise, or even sparks in IMs. In this paper, a modified empirical mode decomposition (EMD) technique, or MEMD, is proposed for BRB fault detection using motor current signature analysis. A smart sensor-based data acquisition (DAQ) system is developed by our research team and is used to collect current signals wirelessly. The MEMD takes several processing steps. Firstly, correlation-based EMD analysis is undertaken to select the most representative intrinsic mode function (IMF). Secondly, an adaptive window function is suggested for spectral operation and analysis to detect the BRB fault. Thirdly, a new reference function is proposed to generate the fault index for fault severity diagnosis analytically. The effectiveness of the proposed MEMD technique is verified experimentally.