Diode clamped multi-level inverter (DCMLI) has a wide application prospect in high-voltage and adjustable speed drive systems due to its low stress on switching devices, low harmonic output, and simple structure. However, the problem of complexity of selecting vectors and capacitor voltage unbalance needs to be solved when the algorithm of direct torque control (DTC) is implemented on DCMLI. In this paper, a fuzzy DTC system of an induction machine fed by a three-level neutral-point-clamped (NPC) inverter is proposed. After introducing fuzzy logic, optimal selecting switching state is realized by applying various strategies which can distinguish the grade of the errors of stator flux linkage, torque, the neutral-point potential, and the position of stator flux linkage. Consequently,the neutral-point potential unbalance, the dv/dt of output voltage and the switching loss are restrained effectively, and desirable dynamic and steady-state performances of induction machines can be obtained for the DTC scheme. A design method of the fuzzy controller is introduced in detail, and the relevant simulation and experimental results have verified the feasibility of the proposed control algorithm.