This paper presents a method based on the wavelet package decomposition (WPD) for condition monitoring of the permanent magnet synchronous motor controlled by sensorless control algorithm. In the proposed method, the wavelet package is used to decompose the frequency spectrum of the motor current. The measured motor current, contains the harmonic created by high frequency voltage injection plus the harmonics of switching action in addition to the frequency of the main supply voltage. Wavelet package is used as a signal processing block to decompose the whole frequency spectrum to several sub-bands. Each sub-band contains essential information related to different events inside the motor. Consequently, by using this method not only a better estimation of position and speed is obtained, but also an estimation of the internal temperature condition of the motor is achieved. Also the output spectrum of WPD contains information about mechanical deformation of the motor bearing. A 2D finite element (FE) analysis is performed to observe the physical and mechanical performances of the motor.