The Drilling Automation for Mars Environment (DAME) project, led by NASA Ames Research Center, is aimed at developing a lightweight, low-power drill prototype that can be mounted on a Mars lander and be capable of drilling down several meters below the Mars surface for conducting geology and astrobiology research. The DAME drill system incorporates a large degree of autonomy - from quick diagnosis of system state and fault conditions to making the appropriate recovery actions - while also striving to achieve as many of the operational objectives as possible. This paper outlines, on a general level, the overall DAME architecture, equipment, and autonomy package. The main focus, however, is on describing the model-based fault detection and diagnosis system, including the modeling approach, the fault modes handled, and the diagnostic algorithms. The results of the latest field tests, conducted in 2006 in Haughton Crater on Devon Island (a Mars analogue site in Canadian Arctic), are also discussed.