This paper presents an approach to the selection of optimal sensor locations in distributed parameter systems, which distinguishes the purposes of state estimation from the purposes of parameter estimation. In the first case, the optimality criterion is based on a measure of independence between the sensor responses, while in the second case, it is based on a measure of independence between the parameter sensitivity functions. The procedure, which is general and can be applied to models with any degree of complexity, is illustrated with the optimal placement of temperature sensors in a catalytic fixed-bed reactor. Some numerical results for the on-line estimation of temperature and concentration profiles as well as for the estimation of unknown model parameters are discussed. (C) 2000 Elsevier Science Ltd. All rights reserved.