Well-established procedures exist to monitor and diagnose fairly severe problems with rotating machinery but little progress has been made in developing techniques to detect subtle changes in machine condition for both improved diagnostics, and to develop prognostic procedures for determining remaining service life. Of all machine faults, crack initiated problems present probably the most significant safety and loss hazard in modern turbomachinery, including aircraft engines and power generation units. Different approaches are used to model, detect, and localize crack-induced damage in rotating structures. This paper presents novel application of active magnetic bearings (AMBs) for on-line rotor crack detection. AMB-actuators provide convenient means to apply a broad spectrum of known dynamic forces and monitor responses in a rotor-bearing system, which facilitates more sensitive and precise diagnostics. The paper presents theoretical modeling and description of the experimental facility for proof-of-concept testing.