The lubricant wear and degradation is a major cause of failure in industrial machines such as engines, pumps and gearboxes. This is primarily due to contaminants such as metal debris particles and depletion of the chemical and physical properties. This paper presents a low cost, multi-functional sensor for real-time monitoring of both oil level and the debris particles in oil lubricants for a gearbox application. The sensor system achieves a micrometer-order resolution (37.5 μm), high linearity (< 0.5 mm non-linearity) and insensitivity to viscosity changes due to wide temperature fluctuations from −40 °C to 135 °C, and is designed for ease of manufacturing and application in harsh transmission environment. The synergy from simultaneous data analysis from a multi-functional sensor has been demonstrated both qualitatively and quantitatively using mathematical analysis, computer simulation and physical experiments.