There are several sensors in the liquid cargo ship. In the liquid cargo ship, we can get values from various sensors that are level sensor, temperature sensor, pressure sensor, oxygen sensor, VOCs sensor, high overfill sensor, etc. It is important to guarantee the reliability of sensors. In order to guarantee the reliability of sensors, we have to study the diagnosis of sensor fault. The technology of smart sensor is widely used. In this paper, the technology of smart sensor is applied to diagnosis of level sensor fault for liquid cargo ship. In order to diagnose sensor fault and find the sensor position, in this paper, we proposed algorithms of diagnosis of sensor fault using independent sensor diagnosis unit and self fault diagnosis using sensor modeling. Proposed methods are demonstrated by experiment and simulation. The results show that the proposed approach is useful. Proposed methods are useful to develop smart level sensor.