This invention is directed to a system and method for isolating a failure in a speaker system. This is accomplished by providing diagnostic processing circuitry, which directs specific test signal(s) to the speakers of a speaker system. The test signals may be designed to allow a user to directionally localize a sound source to determine if a particular speaker is functional. The test signals also may be designed so a user or listener may distinguish sound emanating from a low frequency driver such as a subwoofer versus other speakers. The diagnostic processing circuitry may be located in any of the individual speakers or other common components of a speaker system.