A system and method for isolating defects in scan chains by performing diagnostics fault simulation on chosen faults that are consistent with the nature of a scan chain defect, while keeping information about predictable failures. The effects of defects at specific locations on the scan chain are modeled by compositing the effects of a subset of the faults for each defect. Each composite, which models a specific scan chain defect, is evaluated in terms of how well it predicts the failures measured at a tester, and assigned a score based on that evaluation. The composite with the highest score identifies the modeled defect which is the closest to predicting the results measured at the tester, and therefore the location on the scan chain that has the highest probability of containing the actual defect.