Localization to the rotor-stator rubbing fault of rotating machinery such as aero-engines has been attracting plenty of attentions in fault diagnosis field. Present study attempts to effectively and accurately localize such rubbing sources based on modal AE method automatically. In order to explore the propagation characteristic of rubbing signals, theoretical analysis and finite element simulation on a stator case are conducted. And the dependence of accuracy of time difference of arrival (TDOA) method on the propagation characteristic is investigated. Based on the analysis result, a higher-order statistics (HOS) algorithm is introduced into acoustic emission (AE) to automatically identify the arrival time of rubbing signals and localize the rubbing source via automatic threshold selection. To verify the effectiveness of the proposed AE method to recognize the rubbing fault, a series of rubbing tests are carried out. It is demonstrated by the experimental results that the accuracy of the proposed method is improved compared with conventional TDOA methods since more than half of the sources localized at the rubbing region can be identified in almost all cases and the identification accuracy is up to 80 % at threshold of 85 % of amplitude.