Model-based reasoning is a powerful method for performing system monitoring and diagnosis. Building models for model-based reasoning is often a difficult and time consuming process. The Inductive Monitoring System (IMS) software was developed to provide a technique to automatically produce health monitoring knowledge bases for systems that are either difficult to model (simulate) with a computer or which require computer models that are too complex to use for real time monitoring. IMS processes nominal data sets collected either directly from the system or from simulations to build a knowledge base that can be used to detect anomalous behavior in the system. Machine learning and data mining techniques are used to characterize typical system behavior by extracting general classes of nominal data from archived data sets. In particular, a clustering algorithm forms groups of nominal values for sets of related parameters. This establishes constraints on those parameter values that should hold during nominal operation. During monitoring, IMS provides a statistically weighted measure of the deviation of current system behavior from the established normal baseline. If the deviation increases beyond the expected level, an anomaly is suspected, prompting further investigation by an operator or automated system. IMS has shown potential to be an effective, low cost technique to produce system monitoring capability for a variety of applications. We describe the training and system health monitoring techniques of IMS. We also present the application of IMS to a data set from the Space Shuttle Columbia STS-107 flight. IMS was able to detect an anomaly in the launch telemetry shortly after a foam impact damaged Columbia's thermal protection system.