A method for limiting an engine torque when a failure occurs in a water sensor of a fuel filter includes sensing the failure of the water sensor installed in the fuel filter through a failure diagnosis logic in a diesel hybrid vehicle. A current vehicle driving mode is checked when the failure of the water sensor is sensed. Whether or not a first time period elapses a first delay time after sensing the failure of the water sensor when the current vehicle driving mode is an engine driving mode is determined. The engine torque is limited and reduced when the first time period elapses the first delay time.