In this report, the influence of shot peening on the surfce durability of plasma case-hardened sintered powder metal gears was investigated using a power circulating gear testing machine. The hardness and the surface roughness of the gears increased by the shot peening. The failure mode of the unpeened gears was pitting, and that of the shot-peened gears was spalling. The surface durabilities of the shot-peened gears were higher than that of the unpeened gear in these experiments. While, the failed location on the tooth surface and each failed tooth could be detected by using the wavelet transform of the dynamic characteristics of the gears, such as dynamic tooth root strain and vibration acceleration of gear box.