To improve the reliability of the two-level inverter used in traction system, a fault diagnosis method is proposed, which can detect and diagnose both insulated gate bipolar transistor(IGBT) open-circuit (OC) faults and current sensor faults. First, the model of the inverter is established, which can express the system in normal condition and abnormal condition where an fault occurs. Then, the voltage residuals is acquired, which can be applied for fault detection and diagnosis. In the process of fault diagnosis, no additional hardwares is needed. Besides, The proposed method has strong robustness and can diagnose the faults in different speeds of the system. Finally, the feasibility and effectiveness of the proposed fault diagnosis method have been verified by simulation results.