This paper describes a method of Sensor Fault Detection, Isolation (FDI) and fault-tolerant control (FTC) architecture for vehicle lateral dynamics represented by the Takagi-Sugeno (TS) fuzzy model. Using the LMI formulation, the TS fuzzy model of the vehicle nonlinear dynamics is used to design an observer based controller, a method based on observer bank is then investigated for detection and isolation of sensor faults. Simulations show that the sensor faults are detected immediately after their occurrences and illustrate the proposed FTC strategy.