The fault detection system using automated concepts is a crucial aspect of the industrial process. The automated system can contribute efficiently in minimizing equipment downtime therefore improving the production process cost. This paper highlights a novel model based fault detection (FD) approach combined with an interval type-2 (IT2) Takagi–Sugeno (T–S) fuzzy system for fault detection in the drilling process. The system uncertainty is considered prevailing during the process, and type-2 fuzzy methodology is utilized to deal with these uncertainties in an effective way. Two theorems are developed; Theorem 1, which proves the stability of the fuzzy modeling, and Theorem 2, which establishes the fault detector algorithm stability. A Lyapunov stabilty analysis is implemented for validating the stability criterion for Theorem 1 and Theorem 2. In order to validate the effective implementation of the complex theoretical approach, a numerical analysis is carried out at the end. The proposed methodology can be implemented in real time to detect faults in the drilling tool maintaining the stability of the proposed fault detection estimator. This is critical for increasing the productivity and quality of the machining process, and it also helps improve the surface finish of the work piece satisfying the customer needs and expectations.