This paper describes the design of model-based fault diagnosis software to apply to the propulsion system in tracked amphibious assault vehicle which consists of an engine, a transmission, a cooling system, and two waterjets. This software includes specific functions to detect the failures regarding sensor malfunctions, mechanical malfunctions, control errors, and communication errors. This software generates the proper malfunction codes which are classified as the warning and caution. In order to validate the fault diagnosis software, the manual and automatic test are performed using the test program with 32 test cases. Test results show that the designed fault diagnosis software is reliable and effective for applying to the propulsion system.