Intelligent sensors are investigated as part of an integrated systems approach. This approach has resulted in the development of two types of sensors: Physical Intelligent Sensors (PIS) and Virtual Intelligent Sensors (VIS). The integrated systems approach, as implemented in the PIS, treats the sensor as a complete system with its own sensing hardware (the traditional sensor), A/D converter, processing and storage capabilities, software drivers, self-assessment algorithms and communication protocols. The VIS is the virtual counterpart of the PIS where the algorithms reside on the main computer and is the main focus of this paper. The VIS is used where it is impossible to place a PIS as well as a test platform for algorithms before downloading them to the PIS. The immediate application is the monitoring of rocket test stands at NASA's Stennis Space Center, but the technology should be generally applicable to the Integrated Systems Health Monitoring (ISHM) vision. This paper outlines progress made in the development of intelligent sensors by describing the work done to date on Virtual Intelligent Sensors (VIS) with implementation in the G2 and LabVIEW environments. The VIS has been designed to mirror the operations of the PIS, and uses existing anomaly detection routines developed at NASA. This work lays the foundation for the next generation of smart systems that have embedded intelligence for a wide variety of intelligent civil infrastructures as well as electrical and mechanical systems. © 2012 by Nova Science Publishers, Inc. All rights reserved.