Electric vehicles (EVs) and hybrid electric vehicles (HEVs) can reduce greenhouse gas emissions while switched reluctance motor (SRM) is one of the promising motor for such applications. This paper presents a novel SRM fault-diagnosis and fault-tolerance operation solution. Based on the traditional asymmetric half-bridge topology for the SRM driving, the central tapped winding of the SRM in modular half-bridge configuration are introduced to provide fault-diagnosis and fault-tolerance functions, which are set idle in normal conditions. The fault diagnosis can be achieved by detecting the characteristic of the excitation and demagnetization currents. An SRM fault-tolerance operation strategy is also realized by the proposed topology, which compensates for the missing phase torque under the open-circuit fault, and reduces the unbalanced phase current under the short-circuit fault due to the uncontrolled faulty phase. Furthermore, the current sensor placement strategy is also discussed to give two placement methods for low cost or modular structure. Simulation results in MATLAB/Simulink and experiments on a 750-W SRM validate the effectiveness of the proposed strategy, which may have significant implications and improve the reliability of EVs/HEVs.