A system and method for enhanced diagnostic fault detection and isolation is provided, wherein COTS/MOTS subsystems of a system under test are evaluated in a hierarchical manner providing improved test coverage and a reduction in ambiguity group size. The enhanced diagnostic fault detection and isolation method may proceed from automatic built-in-test to initiated built-in-test and finally to manual tests. At each stage of the testing, results may be evaluated to determine which, if any, components need replacing. The diagnostic system may report the results of testing in a fault log and/or a look-up table structure. The systems and methods of the present invention are suited to testing systems that incorporate COTS or MOTS subsystem components, and for use with an interactive electronic technical manual (IETM). Further, the diagnostic system is adaptable to a variety of subsystem interface protocols.