To improve the reliability of the modular multilevel converter (MMC) system, an open circuit fault diagnosis method based on sliding mode observer for MMC submodule(SM) is proposed. First，the sliding mode observer is designed according to the operating principle of MMC. Then, the residual signal is constructed by the output of the observer and the output by the sensor. The residual signal is analyzed to realize the open circuit fault detection. Then，the fault location is determined according to the output voltage characteristic of fault submodule. Finally, the singlephase MMC simulation model is constructed in Matlab/Simulink, and one of the submodules of the IGBT is opened and the fault diagnosis is carried out. The simulation results show the correctness of the proposed fault diagnosis method.