Rolling element bearings are fundamental component parts to be used in rotational mechanical system. During the operation, vibration signals are generated and these signals are related to the technical condition of rotating machinery. The aim of this paper is simulated the vibration signal that propagated by rolling element bearings in mechanical gearbox. The gearbox dynamic model that combined gearbox components, such as, shafts, involute gears, rolling element bearings is developed. The localized fault is created on the inner race of bearing. The model is simulated using multi-body dynamics solution, after that results are analyzed in waveform and spectral in order to assess the behavior of gearbox.