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Textile industry is one of the major industries in Egypt. Fabric defects severely affect the price of fabrics that represents a major threat to this industry in Egypt. In manual defect detection system, even with highly trained inspectors, small percentage of the defects is detected. A real time automatic defect detection system can increase the detection percentage, hence, reduces the textile fabrication costs. In this paper, we present a new algorithm for fabric defect detection in textile industry. The proposed algorithm uses morphological processing and Discrete Cosine Transform (DCT) to automatically detect fabric defects. The proposed algorithm shows a promising performance and solves several drawbacks associated with the existing algorithms.