This article introduces a new fault-tolerant method for cascaded H-bridge (CHB) multilevel converters based on the selective harmonic mitigation (SHM) technique. In the proposed method, balanced line-to-line voltages are achieved by injecting a common-mode voltage (CMV) into the unbalanced phase voltages when the number of healthy cells differs among phases. The injected CMV allows maximum phase utilization using a minimum number of healthy cells. The suggested method imposes new constraints on SHM switching angles to avoid over-modulation. It also maximizes line-to-line voltage by injecting an appropriate CMV to the modulation waveforms. However, the fundamental component of CMV (FCMV) can cause uneven power distribution among CHB phases, leading to power flow-back in the inverter, which is problematic for nonregenerative CHB inverters as it increases the dc-link voltage of the cells. To avoid power flow-back during faulty conditions, minimizing FCMV is included as an additional objective in the SHM modulation technique. Simulation and experimental results confirm the effectiveness of the proposed fault-tolerant method.