The accurate design, control, and monitoring of the running gaps between static and moving components are vital to preserve the mechanical integrity and ensure the correct functioning of any compact rotating machinery. Throughout engine service, the rotor tip clearance undergoes large variations due to installation tolerances or as the result of different thermal expansion rates of the blades, rotor disk, and casing during speed transients. Hence, active tip clearance control concepts and engine health-monitoring systems rely on precise real-time gap measurements. Moreover, this tip gap information is crucial for engine development programs to verify the mechanical and aerothermal designs and validate numerical predictions. This paper presents an overview of the critical design requirements for testing engine-representative blade tip flows in a rotating turbine facility. This paper specifically focuses on the challenges related with the design, verification, and monitoring of the running tip clearance during a turbine experiment. In the large-scale turbine facility of the von Karman Institute, a rainbow rotor was mounted for simultaneous aerothermal testing of multiple blade tip geometries. The tip shapes are a selection of high-performance squealer-like and contoured blade tip designs. On the rotor disk, the blades are arranged in seven sectors operating at different clearance levels from 0.5 up to 1.5% of the blade span. Prior to manufacturing, the blade geometry was modified to compensate for the radial deformation of the rotating assembly under centrifugal loads. A numerical procedure was implemented to minimize the residual unbalance of the rotor in rainbow configuration and to optimize the placement of every single airfoil within each sector. Subsequently, the rotor was balanced in situ to reduce the vibrations and satisfy the international standards for high balance quality. Three fast-response capacitive probes located at distinct circumferential locations around the rotor annulus measured the single-blade tip clearance in rotation. Additionally, the minimum running blade clearance is captured with wear gauges located at five axial positions along the blades chord. The capacitance probes are self-calibrated using a multitest strategy at several rotational speeds. The in situ calibration methodology and dedicated data reduction techniques allow the accurate measurement of the distance between the turbine casing and the local blade tip features (rims and cavities) for each rotating airfoil separately. General guidelines are given for the design and calibration of a tip clearance measurement system that meets the required measurement accuracy and resolution in function of the sensor uncertainty, nominal tip clearance levels, and tip seal geometry.