Our new compound diagnostic system comprised of a compound sensor, a signal processor, and a personal computer installed signal processing software. The compound sensor made by an advanced sensor fusion technique was able to detect simultaneously the vibration acceleration and the acoustic emission by itself. The signal processor received a signal from the sensor and separated it into the vibration acceleration signal and the acoustic emission signal. The signal processor and the personal computer processed the acceleration signal and acoustic emission signal for diagnostic information. The rolling contact fatigue process of a ball bearing under grease lubrication was monitored using the compound system. The system outputs diagnostic information, for example, the means, the variance, the skewness, and the kurtosis of the vibration acceleration signal and the acoustic emission signal. In diagnosing the rolling contact fatigue failure, the root mean square (rms) value of the vibration acceleration was most effective, and the mean of the demodulated acoustic emission was second to the rms value of the acceleration in effectiveness. From the result of the evaluation, it became clear that the system was useful for diagnosing rolling contact bearings under grease lubrication.