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The increasing importance of power electronic converters in supplying electrical energy to utility grids places a higher priority to detect and protect against fault conditions. Fault detection and isolation are particularly important for inverters that provide black-start recovery for microgrids since these converters provide the energy source for restoration after a power outage. This paper presents a new fault detection and location method for Cascaded H-Bridge (CHB) multilevel inverters. The new fault detection method is based on monitoring the output voltage of each cell and output current directions along with each switch’s state. By monitoring each cell’s output voltage and current direction, the faulty cell can be detected and isolated. After the faulty cell is detected, the faulty switch can be located by comparing the current direction with the switching states. This technique is implemented with Level-Shifted Pulse Width Modulation (LS-PWM) in order to maintain acceptable total harmonic distortion (THD) levels at the converter. The proposed method can be implemented for a CHB with any number of cells, can operate with nonlinear loads, and offers very fast detection times. Simulation and experimental results verify the performance of this method.