Accurate and efficient monitoring of electrical machine (EM) operating parameters, including temperature, mechanical vibration, torque and rotating speed and others that can indicate the EM health conditions is becoming ever more important in the world of electrical drives. The traditional methodology of one sensor per parameter can be theoretically replaced by a "one sensor measures all" technology, which can be achieved through the use of fibre-optic sensors (FOS). In this paper, several FOSs, which use different optical sensing principles for multiple physical parameter measurements of EMs, are reviewed. This paper also provides an insight into the major developments, and discusses the engineering challenges of FOS used for EM monitoring over the last few decades, and compares the advanced features of FOS with those of conventional sensors in use. Finally, a novel FOS-EM observer system scheme employing the Fibre Bragg Grating technique for multiparameter monitoring of EM health is proposed, after discussion of the preceding industrial and academic FOS cases for EM applications.