Sensors and actuators with built-in local intelligence are often described as microsystems. The integration of processing electronics at the sensor and actuator level enables the distribution of processing tasks such as calibration and filtering as well as test and diagnostic functions from upper system hierarchies to lower levels. This paper describes Built-In-Self-Test (BIST) and diagnostic strategies for Safety Critical Microsystems. It compares different approaches and demonstrates the importance of utilising Reliability Indicators (Rls) for on-chip monitoring and diagnostics. The close relationship between Design for Testability (DfT) for post-production tests and the BIST strategies for on-line monitoring is outlined. A multichip design strategy is described for an example microsystem.