In this paper, a novel adaptive demodulation technique including a new diagnostic feature is proposed for gear diagnosis in conditions of variable amplitudes of the mesh harmonics. This vibration technique employs the time synchronous average (TSA) of vibration signals. The new adaptive diagnostic feature is defined as the ratio of the sum of the sideband components of the envelope spectrum of a mesh harmonic to the measured power of the mesh harmonic. The proposed adaptation of the technique is justified theoretically and experimentally by the high level of the positive covariance between amplitudes of the mesh harmonics and the sidebands in conditions of variable amplitudes of the mesh harmonics. It is shown that the adaptive demodulation technique preserves effectiveness of local fault detection of gears operating in conditions of variable mesh amplitudes.