This paper addresses the issues of Fault Detection and Isolation (FDI) in complex networked systems such as the Environmental Control System (ECS) of an aircraft. The ECS controls and supplies pressurized air to the aircraft and consists of multiple subsystems that in turn consist of interconnected components, heterogeneous sensing devices, and feedback controllers. These complex interconnections and feedback control loops make fault detection and isolation a very challenging task in the ECS. For example, a faulty component yields off-nominal outputs which are inputs to the other coupled components. This coupling leads to off-nominal outputs from otherwise healthy components, thus causing unwanted false-alarms. Secondly, due to off-nominal inputs, the healthy components are driven beyond their normal operating conditions, leading to cascading failures. In this regard, this paper presents a hierarchical fault detection and isolation method that facilitates FDI in complex networked systems while reducing the computational complexity and false alarms. The underlying algorithm is called System-Level Isolation and Detection (SLIDE), and it relies on a diagnostic tree that systematically isolates faulty subsystems and their components. The proposed method is tested and validated on the data generated from an experimentally validated simulation model of the ECS provided by our industry partner. The results show that the application of the SLIDE algorithm reduces the computational complexity and the false alarm rate, while maintaining a high Correct Classification Rate (CCR).