In this paper, we propose a novel design of a redundant inertial measurement unit (IMU) with hardware-based fault detection and fault-tolerant quaternion-based extended Kalman filter (EKF). The IMU consists of cost-effective 9 degrees of freedom (DOF) analog inertial sensors and low cost 9-DOF single-chip digital inertial sensors. The self-test features of analog sensors have been used to examine if both the sensor and signal conditioning circuits are working properly. In case of sensor failure, a switching algorithm isolates the failed sensor and the system continues to operate with the redundant sensor. The switching algorithm has been implemented according to the quaternion based EKF. The proposed fault detection and isolation (FDI) approach has been experimentally tested on a rotary table with two axes and the results show that the proposed method provides reliable measurement in case of a sensor failure.