This paper proposes an alternative observation scheme, T-S fuzzy model based indirect adaptive fuzzy observer. Nonlinear systems are represented by fuzzy models since fuzzy logic systems are universal approximators. In order to estimate the unmeasurable states of a given nonlinear system, T-S fuzzy modeling method is applied to get the dynamics of an observation system. T-S fuzzy system uses the linear combination of the input state variables and the modeling applications of them to various kinds of nonlinear systems can be found. The adaptive fuzzy scheme estimates the parameters comprising the fuzzy model representing the observation system. The proposed indirect adaptive fuzzy observer based on T-S fuzzy model can cope with not only unknown states but also unknown parameters. In the process of deriving adaptive law, the Lyapunov theory and Lipchitz condition are used. To show the performance of the proposed observation method, it is applied to an inverted pendulum on a cart.