Beginning in 2010, implementation of on-board diagnostics (OBD) is mandatory for all the heavy-duty engine applications in the United States. The task of developing OBD strategies and calibrating them is a challenging one. The process involves a strong interdependency on base engine emissions, controls and regulations. On top of that the strategies developed as a result of the regulatory requirements need to go through a stringent and time-intensive process of software implementation and integration. The recent increasing demands to minimize the development process have been pushing the envelope on the methodologies used in developing the strategies and the calibration for robust monitoring. The goal of this paper is to provide a concise overview of a process utilized to help the development, testing and calibration of the OBD strategies on a 2010 model year heavy-duty diesel engine. The paper will focus on the setup of hardware-software-in-the-loop in detail by describing the components involved in the setup and their functionalities. The methods used to link the individual elements to achieve the goal of creating a virtual environment for OBD strategy development and calibration are described. The main components of the integrated system presented in this paper include the following: MATLAB® Simulink® software, an Integrated Calibration and Acquisition System (INCA®), an engine control unit (ECU), and a GT-POWER® engine performance model. Both test data analysis and desktop engine simulation are included in the paper to validate the tuning of the GT-POWER® model and the interaction between the ECU and the GT-POWER® model through a MATLAB® setup. The paper also addresses the development of new OBD strategies in the MATLAB® environment. These strategies can be simulated and verified in a desktop computer through simulations by running multiple test cycles in order to gather sufficient information on the robustness of the strategies before finalizing them. Moreover, the calibration method for the existing strategies in a desktop directly results in cost savings due to the reduction of test cell time. Furthermore, the examples of how a field test run of OBD can be visualized and thoroughly analyzed on a desktop computer are discussed. These examples demonstrate the approaches to the reasoning of fault detection and to calibration refinement. The main goal of this paper is to provide insights to the engine controls and calibration community regarding the new methods that can be harnessed by using well known simulation/analysis and data/signal processing tools to minimize engine development time and to improve the effectiveness of the development and calibration processes.