A multibody approach is suitable for tolerance analysis of mechanical systems since multibody formulation can directly consider part-level tolerance variables. In this study, procedures for performing tolerance analysis and corresponding sensitivity analysis for spatial multibody systems are proposed. First, statistical formulation for performing multibody system tolerance analysis is developed to obtain system level tolerance for given part-level tolerances. One very useful aspect of the proposed formulation is that in the process of computing system tolerance, the sensitivity of system tolerance with respect to part-level tolerances can be additionally obtained. The kinematics of spatial multibody systems has been redefined in terms of both generalized coordinates and part-level tolerance variables. Tolerances in geometry of a body are specified in terms of the variations in relative locations of joint definition points and relative distance between them. Tolerances in the joint kinematics are defined through variations in vector closure equations and orthogonality equations that are two fundamental constraint equations for most kinematic joints. To demonstrate the validity and effectiveness of the proposed tolerance analysis procedure, tolerance analysis of a spatial 4-bar mechanism and tolerance optimization are performed.