Corporations need better real-time monitoring and control systems to improve productivity by watching quality and increasing production flexibility. The innovative technology to achieve this goal is evolving in the form artificial intelligence and neural networks applied to sensor processing, fusion, and interpretation. By using these advanced Al techniques, we can leverage existing systems and add value to conventional techniques. Neural networks and knowledge-based expert systems can be combined into intelligent sensor systems which provide real-time monitoring, control, evaluation, and fault diagnosis for production systems. Neural network-based intelligent sensor systems are more reliable because they can provide continuous, non-destructive monitoring and inspection. Use of neural networks can result in sensor fusion and the ability to model highly, non-linear systems. Improved models can provide a foundation for more accurate performance parameters and predictions. We discuss a research software/hardware prototype which integrates neural networks, expert systems, and sensor technologies and which can adapt across a variety of structures to perform fault diagnosis. The flexibility and adaptability of the prototype in learning two structures is presented. Potential applications are discussed.