Abstract: The paper considers the problem of virtual sensor design for nonlinear dynamic systems with non-smooth nonlinearities described by continuous-time models for faulty physical sensor replacement. It is assumed that to solve the problem, the system is equipped by diagnostic system allowing detecting and isolating the faulty sensor. For every such a sensor, the virtual sensor generating estimate replacing the faulty sensor is designed. To solve the problem, so-called logic-dynamic approach is used which does not guarantee optimal solution but uses only methods of linear algebra to solve the problem for systems with non-smooth nonlinearities. The virtual sensor can be designed in the identification canonical form or Jordan canonical form. The advantage of the first form is a standard procedure of the virtual sensor design while Jordan form allows obtaining a simpler solution. The relations allowing designing the virtual sensor both in identification and in Jordan canonical form are derived.