To recognize and classify the performance, analyze reliability and residual life and diagnose typical faults, an aero-engine health monitoring method is proposed based on grey target decision, analytic hierarchy process (AHP) and entropy theory. First, the monitoring values of a new type of aero-engine are taken as the target center. The grey target model whose weight coefficient is optimized with AHP and entropy theory is used to calculate the approaching degrees. Then, the health level standard is formulated based on the severe degree and failure probability. The approaching degree is translated into the reliability degree for the calculation of residual life combining with the engine performance degradation curve. Finally, the approaching degrees of typical failure data is calculated as the reference of fault diagnosis. The verification result of performance parameters data from a Honeywell aero-engine gas path shows that the algorithm proposed in this paper can effectively monitor the aero-engine health. Therefore, the algorithm proposed in this paper is practical and accurate.