A method of operating a transmission includes measuring an output torque, estimating a gearbox input torque using a model, and estimating gearbox component torques based on a detailed gearbox model. The model used to estimate the input torque varies depending on whether a torque converter is locked, open, or slipping. In some operating conditions, multiple estimates are available for gearbox input torque, impeller torque, or shift element torque in which case the models are adapted. When an estimated component torque is outside an expected range, a warning flag is raised and diagnostic data is saved. When an estimated torque approaches or exceeds a torque limit, the input torque command may be reduced to prevent component damage. A warning flag may also be raised and diagnostic data saved in response to a model parameter being adapted to a value outside of a predetermined range.