Vector controlled drives require stator current information for use in current feedback and/or state variable estimators. That is why the detection and compensation of possible CS damage is so important. This article focuses on current sensor (CS) fault-tolerant control (FTC) in induction motor (IM) drive systems. In contrast to solutions known from the literature, two Modified Luenberger Observers (MLO) were applied, allowing for high-quality estimation of currents used in the detector and fault compensator. In a simple implementation of a detection algorithm based on residuals, an adaptive threshold coefficient was employed, enabling effective detection of various types of faults, regardless of whether the second current sensor was faulty or intact. The presented solution was evaluated during both motor and regenerative operation, with faults occurring in transient states, unlike solutions known in the literature.