Autonomous unmanned systems require provision for fault detection and recovery. Multiply-redundant schemes typically used in aerospace applications are prohibitively expensive and inappropriate solution for unmanned systems where low cost and small size are critical. Aurora Flight Sciences is developing alternative low-cost, fault-tolerant control (FTC) capabilities, incorporating failure detection and isolation, and control reconfiguring algorithms into aircraft flight control systems. A 'monitoring observer', or failure detection filter, predicts the future aircraft state based on prior control inputs and measurements, and interprets discrepancies between the output of the two systems. The FTC detects and isolates the onset of a sensor or actuator failure in real-time, and automatically reconfigures the control laws to maintain full control authority. This methodology is unique in providing a compact and elegant FTC solution to dynamic systems with nonlinear parameter dependence, such as high-altitude UAVs (unmanned air vehicles) and UUVs (unmanned undersea vehicles), where the dynamic behavior varies strongly with speed (i.e., dynamic pressure) and density. In simulation, the application of the algorithm to actual telemetry data from an in-flight vertical gyro failure, shows the algorithm can easily detect the failure and further demonstrated (in simulation) reconfiguring of the autopilots to successfully accommodate recovery.