This paper discusses a method for detection and localisation of the insulation faults in electrical equipment distributed along the body of electric and hybrid electric vehicles. At the beginning of the fault detection procedure it is required that the vehicle powertrain be shut-down. The method is based on measurement and comparison of leakage currents in every device in the electrical powertrain. The leakage currents are generated by a high voltage signal generator connected between the vehicle body ground and dc-bus wires and shifting the potential between the electrical equipment and chassis. The currents are measured using a current clamp to detect the active component of the leakage current corresponding to an insulation fault. The proposed method was implemented in a prototype device used to detect an insulation fault in subway powertrains (i.e. a metro train). The method demonstrated excellent efficiency through successful detection and localisation of insulation faults.