Induction Motor being the most popular one in industry, it is very important to carry out studies about the effects of power quality in the efficiency and reliability of induction motor. The effect of unbalanced supply conditions on the performance of three-phase induction machine is examined in MATLAB environment. The induction motor experiences several types of electrical/incipient faults such as over/under voltage, phase reversing, unbalanced voltage, over load, single phasing and earth fault. The main fault considered in this work is unbalanced supply voltage. To analyze the behavior of induction motor during unbalanced supply voltage, the induction motor is modeled using arbitrary reference frame theory in MATLAB/ Simulink environment, the faults are created (Balance Over Voltage, Balance Under Voltage, Unbalanced Over Voltage, Unbalanced Under Voltage) and the variations of the induction motor parameters are observed. Variation in speed, rotor losses, efficiency, torque and power factor are calculated and observed during unbalanced supply.