A methodology is presented for designing cost-effective optimal sensor configurations for structural model updating and health monitoring purposes. The optimal sensor configuration is selected such that the resulting measured data are most informative about the condition of the structure. This selection is based on an information entropy measure of the uncertainty in the model parameter estimates obtained using a statistical system identification method. The methodology is developed for the uncertain excitation case encountered in practical applications for which data are to be taken either from ambient vibration tests or from other uncertain excitations such as earthquake and wind. Important issues related to robustness of the optimal sensor configuration to uncertainties in the structural model are addressed. The theoretical developments are illustrated by designing the optimal configuration for a simple 8-DOF chain-like model of a structure subjected to an unmeasured base excitation and a 40-DOF truss model subjected to wind/earthquake excitation. © 2001 by ASME.