The fault diagnosis of hydro-turbine governing system is important to the operation of the hydropower station and the stability of the power grid. In order to improve the diagnostic accuracy and efficiency, a novel fault diagnosis method based on nonlinear output frequency response functions and a novel identification method of nonlinear output frequency response functions have been proposed and applied to the problem of hydro-turbine governing system fault diagnostics. First, the nonlinear model of hydro-turbine governing system is built. And the fault diagnosis principles based on nonlinear output frequency response functions are also introduced. Then, the disadvantages of the traditional identification method are discussed, and a novel identification method is proposed for nonlinear output frequency response functions according to the operation characteristic of hydro-turbine governing system. Finally, simulation verification and experimental studies have been presented to demonstrate the accuracy and efficiency of the proposed fault diagnosis method. The results indicate that the proposed method is simple and practical for fault diagnosis of hydro-turbine governing system.