Bi-spectrum is a tool in the signal processing for identification of non-linear dynamic behvaiour in systems, and well-known for stationary system where components are non-linearly interacting. Breathing of a crack during shaft rotation is also exhibits a non-linear behaviour. The crack is known to generate 2X (twice the machine RPM) and higher harmonics in addition to 1X component in the shaft response during its rotation. Misaligned shaft also shows similar such feature as a crack in a shaft. The bi-spectrum method has now been applied on a small rotating rig to observe its features. The bi-spectrum results are found to be encouraging to distinguish these faults based on few experiments conducted on a small rig. The results are presented here.