Aiming at the problem of rotor flux orientation inaccuracy in induction motor’s vector control process, the reason of flux linkage observation error was analyzed, and the online identification method of motor parameters was emphatically studied. A method based on model reference adaptive system for flux observation and parameter identification was proposed. The twoparameter adaptive law of rotor time constant and excitation mutual inductance was designed based on Popov hyperstability theorem. This method took the voltage model as the reference model, and identified the parameters required by the current model on line. It made the flux observation result convergent and robust, avoiding bad effects of the motor parameter measurement inaccuracy and the easy change. The simulation results proved that the method was accurate and realtime.