Using vector control (VC) theory for AC machines can result in high performance speed and torque responses. An induction machine driven by a vector control system exhibits behavior similar to a separately excited DC machine with independently controlled flux and torque. In this paper the d-q model of an induction motor drive is used to derive the state space matrix representation of the drive system. A state observer model using the machine currents and speed measurements is analyzed. The estimator is derived by direct synthesis from the state equations. A space vector pulse width modulation (SV-PWM) inverter is used to supply the power waveforms to the induction motor. The model implementation and system simulation is performed using MATLAB/Simulink software. Finally, the overall vector control system is validated in real-time using a hardware in loop (HIL) system based on the dSPACE CLP1104 control board.