This paper describes a systematic approach to identify the best sensor combination by performing sensor placement analysis to detect and isolate clutch stuck off faults in Automatic Transmissions (AT) based on structural analysis. Multiple clutches are engaged to achieve a specific gear ratio in an automatic transmission. When an engaged clutch loses pressure during operation, it is classified as a clutch stuck off fault. Automatic transmissions can enter in neutral state because of these faults. Identifying required sensors to detect and isolate these faults is important in the early stage of the automatic transmission development. A general approach to develop a structural model of an automatic transmission is presented based on the kinematic relationships of the planetary gear set elements and the constraints introduced by the engaged clutches. Sensor placement analysis is then performed to determine sensor locations to detect and isolate clutch stuck off faults using speed sensors and clutch pressure sensors. The proposed approach is then applied to a 10 Speed automatic transmission to demonstrate its effectiveness. A simulator is developed to qualitatively study the effects of clutch stuck-off faults on speeds of different elements in an automatic transmission. Simulator results are presented to support the sensor placement analysis. Later, comparative analysis of different sensor sets is presented based on cost and performance to choose the optimal sensor combination. This paper concludes by discussing in detail the different sensor sets that give different fault isolability performances and suggests that only increasing number of sensors does not guarantee better fault isolability.