This paper constructs a new type of observer structure called “dynamic observer” for the problem of sensor fault detection under finite frequency disturbance and noise in networked control systems. A joint optimization of zero and pole for fault detection is proposed by the new feature of dynamic observer’s zero can be freely assigned. Dynamic observer is based on the traditional proportional integral observer and expand it into a more general type and have the property of zero can be assigned to anywhere. The dynamic observer overcomes the problem of traditional observer’s zero is invariant. Zero of dynamic observer is assigned to the characteristic spectrum of mixed with the finite frequency disturbance signal and the network transmission delay, so the effect of disturbance on the residual can be better attenuated. A comprehensive performance of observer for fault detection is proposed. The pole of dynamic observer is designed by the H2/H∞ method to optimize the comprehensive performance of observer. Finally, taking the model of networked two-wheel self-balancing robot as an example, the fault detection performance of dynamic observer, proportional integral observer and proportional observer method to be compared. The comparison results show the advantages and effectiveness of dynamic observer fault detection method.