Abstract A mixed‐integer linear programming formulation for the design of sensor networks for simultaneous process monitoring and fault detection/resolution is presented. The objective is to find a cost‐optimal sensor set for a chemical process that provides a good estimate of the state of the system and detects as well as locate a preestablished set of faults. A continuously stirred tank reactor example is provided and extensions are discussed. © 2004 American Institute of Chemical Engineers AIChE J, 50: 1870–1880, 2004