This Master thesis presents condition monitoring and diagnostics of hydro-electric generating units – today's necessity and benefits of these systems. Traditionally hydropower plants have been design and built for optimal energy generation with continuous operation. Lately, many power plants have experienced a change in operation pattern with more starting and stopping and larger and more frequent load changes than before. This development causes increased measuring and monitoring systems for hydropower machinery because standard or conventional control and measuring system are not enough for complete «picture» of condition of hydroelectric turbine-generator sets. Monitoring critical asset parameters such as vibration, air gap, magnetic flux, partial discharge and numerous other condition indicators is proven method for anticipating and preventing mechanical and electrical failures. All numbered parameters are detailed described, from some physics basis to application through on-line measuring and condition monitoring systems of hydro-electric generating units. Furthermore, Master thesis presents some benefits of on-line condition monitoring and diagnostics systems, such as: improved protection from catastrophic failures, better machinery reliability/availability, fewer process interruptions, enhanced maintenance/outage planning, lower maintenance and repair costs, longer intervals between outages. At the end it'll present technical-economical analysis and feasibility of these systems and some world's experience in exploitation of the same systems.