In order to achieve diagnosis on missile system levels’ fault, this paper proposes a method of diagnosis on missile based on multi-signal flow graphs model. This method makes use of multi-signal flow graphs models to build system’s layer structure models. Then analyze the missile system levels’ testability index, the correlated matrix (fault mode to test) will be produced simultaneously. When faults are found on missile during test, simplify the correlated matrix with the correlation between fault mode and test, and then the fault can be located to LRU. Finally, prove the method with applying the method on electric system. The result proves that, this method is effective to missile system levels’ testability model building and analyze. Utilize the model to locate the fault on missile system levels precisely.