In this paper, an observer-based speed sensorless field oriented control (FOC) algorithm is presented for induction machines. The state observer is based on a new, detailed observer model which describes the machine with seven state variables, i.e. with seven equations. Since these equations are strongly non-linear, the applied observer algorithm is the unscented Kalman filter (UKF). Using the advantages of the detailed non-linear model and the UKF algorithm, the state variables can be estimated adequately, including the rotor flux position. Using these variables a speed sensorless FOC structure has been developed.