In this paper, the dynamic behavior of rolling element bearings with localized faults on the inner and outer rings is investigated. A nonlinear mathematical model is developed with five degrees of freedom considering rotor unbalance. In this bearing model, the nonlinearity is caused by the Hertzian contact forces and the radial internal clearance. The fourth-order Runge–Kutta technique is used to solve the coupled nonlinear equations of motion numerically. Nonlinear vibration response of the rotor and bearing housing can be obtained in both time and frequency domains. An experimental verification of the numerical model is presented where experimental measurements for defective ball bearings are compared with the numerical results. Envelope spectra of the numerical results show similar behavior to that of the measured experimental signals. A parametric analysis is conducted to investigate the effect of system parameters on the nonlinear dynamic response using time waveforms, orbit plots, frequency spectra and bifurcation diagrams. The presented results demonstrate that the dynamic response shows periodic, quasi-periodic and chaotic motions because of varying rotational speeds and defect width. The proposed model contributes toward improved design and better health monitoring of bearings in practice.