A review of the prevalent degradation mechanisms in Lithium ion batteries is presented. Degradation and eventual failure in lithium-ion batteries can occur for a variety of dfferent reasons. Degradation in storage occurs primarily due to the self-discharge mechanisms, and is accelerated during storage at elevated temperatures. The degradation and failure during use conditions is generally accelerated due to the transient power requirements, the high frequency of charge/discharge cycles and differences between the state-of-charge and the depth of discharge influence the degradation and failure process. A step-by-step methodology for conducting a failure analysis of Lithion batteries is presented. The failure analysis methodology is illustrated using a decision-tree approach, which enables the user to evaluate and select the most appropriate techniques based on the observed battery characteristics. The techniques start with non-destructive and non-intrusive steps and shift to those that are more destructive and analytical in nature as information about the battery state is gained through a set of measurements and experimental techniques.