This paper presents a novel concept of the modeling, active control of transverse vibration responses, and identification of fault parameters in a geared-rotor system integrated with active magnetic bearings (AMBs). The sources of error in gears while in the operation are the gear mesh deformation, transmission error, and runout, resulting in dynamic forces, excessive vibration, and noise. To avoid any undesirable effect on the gear-pair and other supporting structures, it is essential to investigate these forced vibrations in time and frequency domain. Hence, an approach to monitor and control the transverse vibration of mating gears is presented with the help of AMBs. The AMBs are capable of suppressing the vibration of the system (transients as well as steady-state) by controlled electromagnetic forces considering the rotor vibrational displacement with a closed-loop feedback system. A mathematical model has been developed with geared rotor faults, like the mesh deformation, gear run-out, and asymmetric transmission error. The transmission error has been modeled as the sum of mean and varying components of error in two orthogonal transverse directions. Based on the mathematical model, an identification algorithm has been developed. Considering full spectrum analysis of the rotor vibration and AMB current information, estimation of system parameters, i.e., the equivalent mesh stiffness, mesh damping, gear runouts, the mean and varying transmission error magnitude and phase angles, and the current and displacement constants of AMBs has been performed. Gaussian noise in responses and modeling errors in mathematical models have been added to test the robustness of the proposed algorithm to comply with the experimental settings.