In this study, a novel failure diagnostic system for timing belts was developed in order to prevent a catastrophic belt failure. These failures may occur before running out the nominal belt life and lead to an extensive engine damage, thereby resulting costly repairs. Timing belt failures are generally resulted from three reasons, that is, lack of a tooth, fiber separation on belt sides, and teeth splitting. Three optical sensors with laser beam whose diameter is 0.6 mm was located on suitable positions and it is used to produce error signal resulted from disturbance of laser beam flows due to failure. The error signal is processed by the processor, which is independent from the electronic control unit (ECU) to alert the driver or ECU, directly. Experimental apparatus which consists of two camshaft pulleys and an idler pulley with belt tensioner has been set up to simulate real engine conditions. Experimental results show that the optical monitoring technique is reliable to determine timing belt failure types simultaneously in the range of 500–7000 rpm engine speed and it is also easier, low cost and more applicable than other methods such as vibration monitoring.