In this paper, a single-phase to three-phase PWM converter topology using a single-phase half-bridge PWM rectifier and a 2-leg inverter for low cost three-phase induction motor drives is proposed. In addition, the source voltage sensor is eliminated with a state observer which controls the deviation between the model current and the system current to be zero. The converter topology is of lower cost than the conventional one, which gives sinusoidal input current, unity power factor, dc output voltage control, bidirectional power flow and VVVF output voltage. The experimental results for V/F control of 3Hp induction motor drives have been shown.