This paper investigates the differences between disturbance observer techniques and residual generation method in fault diagnosis. We firstly point out the possible limitations of residual based approach compared with fault estimation based approach through sensors fault diagnosis of a linear motor driving system. On the one hand, it may produce a residual insensitive to the fault due to the self-correction feature of the observer. On the other hand, the diagnosis logic of it is complicated and does not work when the observability conditions do not hold. On this basis, the nonlinear disturbance observer is further introduced to perform actuator fault diagnosis for a nonlinear system. Simulation results of a linear motor driving system and a nonlinear missile system illustrate the efficiency of fault estimation based diagnosis approach.