A fault diagnosis method based on wavelet and adaptive interference canceling is presented for the identification of a damaged gear tooth. A damaged tooth of a certain gear chain generates impulsive signals that could be informative to fault detections. Many publications are available not only for the impulsive vibration signal analysis but the application of signal processing techniques to the impulsive signal detections. However, most of the studies about the gear fault detection using the impulsive vibration signals of a driving gear chain are limited to the verification of damage existence on a gear pair. Requirements for more advanced method locating damaged tooth in a driving gear chain should be a motivation of further studies. In this work an adaptive interference canceling combined with wavelet method is used for a successful identification of the damaged tooth location. An application of the wavelet technique provides a superior resolution for the damage detection to the traditional frequency spectrum based methods. An analysis and experiment with three pair gear chain show the feasibility of this study yielding a precise location of the damaged gear tooth.