Fastening operations are extensively used in the aerospace industry and constitute for more than a quarter of the total cost. Inspection of fasteners is another factor that adds cost and complexity to the overall process. Inspection is usually carried out on a sampling-basis as a stand-alone process after the fastening process is completed. Lack of capability to inspect all fasteners in a cost effective manner and the need to remove non-value added activities, such as inspection by itself, in order to reduce the manufacturing lead time have been the motivation behind this study. This paper presents a novel diagnostics scheme based on Mahalanobis-Taguchi System (MTS) for monitoring the quality of rotary-type fastening operations in real-time. This approach encompasses (1) integrating a torque sensor, a pressure sensor, and an optical encoder on a hand-held rotary-type fastening tool; (2) obtaining process parameters via the embedded sensors and generating process signatures in real-time; and (3) detecting anomalies on the tool using a wireless mote that communicates the decision with a base station. the anomalies investigated in this study are the grip length variations as under grip and normal grip, and presence of re-used fasteners. the proposed scheme has been implemented on prototype rotary tool for bolt-nut type of fasteners and tested under a variety of experimental settings. the experimental results have shown that the proposed approach is successful, with an accuracy of over 95% in detecting grip lengths of fasteners in real-time during the process