This paper describes an adaptive control system for an induction motor drive that propels a Hybrid Electrical Vehicle (HEV). It has been designed to comply with the major requirements of HEVs electric propulsion. The fault tolerant controller is based on a Field Oriented Control with 4 IP regulators, a speed sensor and two observers (Extended Kalman Filter (EKF) and an Adaptive Observer (AO)) to guarantee the best dynamic performances required by the application and also to improve the reliability in the event of sensor loss or sensor recovery. The tuning of the observers is based on extensive simulations, experimental results and optimization procedure within an open-loop type approach. The fault tolerant controller reorganization is based on a control decision block implemented with a Maximum Likelihood voting algorithm. The results of the control system show the effectiveness of the approach. Indeed experimental results of the EKF used in closed loop confirm the validity of the sensorless controller and the fault tolerant controller simulation results in the event of speed sensor loss and recovery are very promising even in case of stator resistance variation.