Health Monitoring Systems is an implementation of monitoring strategies for complex systems whereby avoiding catastrophic failure, extending life and leading to improved asset management. A Health Monitoring Systems generally encompasses intelligence at many levels and sub-systems including sensors, actuators, devices, etc. In this paper, a smart sensor is studied, which is use to detect transient transitions of liquid-propellant rocket engines test bed. In consideration of dramatic changes of variable condition, wavelet decomposition is used to work real time in areas. Contrast to traditional Fourier transform method, the major advantage of adding wavelet analysis is the ability to detect transient transitions as well as obtaining the frequency content using a much smaller data set. Historically, transient transitions were only detected by offline analysis of the data. The methods proposed in this paper provide an opportunity to detect transient transitions automatically as well as many additional data anomalies, and provide improved data-correction and sensor health diagnostic abilities. The developed algorithms have been tested on actual rocket test data.