Early diagnosis of interturn short circuit (ITSC) fault is essential to prevent catastrophic electrical machine failures. Along with the detection, locating the faulty winding at its incipient stage is also critical to reduce the outage duration and operation losses. This article proposes a practical method to detect the ITSC fault and locate the faulty winding in permanent magnet synchronous motors (PMSMs) through stray magnetic flux monitoring. It is shown that relying on the fundamental stray flux component can potentially underperform at certain operating conditions leading to fault negative error. To compensate this shortcoming, the third harmonic component of stray flux is comprehensively analyzed and proposed as a complementary ITSC fault indicator. Furthermore, its reliability over the wide range of motor operation is verified to eliminate potential fault negative errors. It is also shown that the proposed method is independent of the fault severity which is a major advantage for practical applications. The findings are supported through 2-D-FEA PMSM drive system simulations and experiments under two different fault severity cases.