This paper investigated, using experimental method, the suitability of acoustic emission (AE) technique for the condition monitoring of diesel engine valve faults. The clearance fault was adjusted experimentally in an exhaust valve and successfully detected and diagnosed in a Ford FSD 425 four-cylinder, four-stroke, in-line OHV, direct injection diesel engine. The effect of faulty exhaust valve clearance on engine performance was monitored and the difference between the healthy and faulty engine was observed from the recorded AE signals. The measured results from this technique show that using only time domain and frequency domain analysis of acoustic emission signals can give a superior measure of engine condition. This concludes that acoustic emission is a powerful and reliable method of detection and diagnosis of the faults in diesel engines and this is considered to be a unique approach to condition monitoring of valve performance.