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A wheel speed sensor, also called an "ABS sensor," is part of the Anti-lock Brake System (ABS). It is located on the tires (near the brake rotors for the front tires and in the rear end housing for the rear tires). The job of the wheel speed sensor is to constantly monitor and report the rotational speed of each tire to the ABS control module. ABS is a safety system that prevents your car from skidding or sliding when you apply the brakes. When the brake is applied, the ABS control module reads the speed data from the speed sensor and sends the correct pressure to each wheel to prevent any sliding/skidding (wheels locking up).
On cars that come with rotors in each tire, each tire will also have a speed sensor. On cars that have rear drums (instead of rotors), the tires will have one sensor in the rear and two sensors in the front. When one or more of these sensors are faulty, the ABS warning light will go on and the ABS will be disabled. You will still be able to slow down and stop your car, but the tires may slide when you apply brakes, esp. on slippery surfaces.
During a brake service, the mechanic will make sure that the sensor is free of debris or grease that may prevent the sensor from functioning properly.
Without wheel speed sensors, your ABS and TCS will not work. These systems rely on information from the wheel speed sensors; the sensors tell the ABS when to unlock the brakes to avoid sliding, and they tell the TCS when to distribute power to different wheels so that you stay in control of your vehicle. Without wheel speed sensors, the ABS and TCS do not have the information they need, and so they shut off, leaving your car without two primary safety features.