Recent advances in remote sensing technologies and image analysis provide a realistic opportunity to develop a reliable, robust indicator of forest health for Australian eucalypt forests. Using these technologies we present the development of a conceptual framework for a new indicator based on eucalypt canopy condition. The indicator, termed the Eucalypt Canopy Condition Index (ECCI), is derived from an assumed hierarchy of canopy decline symptoms, both physiological and structural. Our objective is to identify and discuss possible combinations of spectral, radiometric and spatial (scale) features from remotely sensed data that theoretically and practically correlate with each hierarchical phase of severity in canopy decline. Some of the issues associated with the development and application of the ECCI are discussed, and finally, how the ECCI could be integrated into existing or future operational systems is illustrated.