The paper discusses the problem of flux estimation for the induction motor (IM) drive and presents a sensorless observer. The intention is to estimate the IM fluxes in the stationary reference frame in order to obtain both the magnitude and the angle of the rotor flux. The flux magnitude is typically used for d axis feedback; the flux angle is needed for field orientation. The paper presents an alternative state-space model of the IM. Based on this, a Lyapunov-type nonlinear state observer with continuous feedback is designed. The paper first assumes that the speed is known and develops a sensored observer; then, this is transformed into a sensorless observer by feeding it with a speed estimate (assumed inaccurate). This method eliminates the speed measurement. The paper shows that, despite the improper speed input, the design yields a partially accurate estimate of the state vector that is sufficient for obtaining the magnitude and angle of the flux. Previous observers developed under the same conditions based on the traditional IM model were only capable of estimating the angle of the flux (but not the magnitude). The novelty is that this method also yields an accurate flux magnitude. It is shown that the equilibrium point of the observer is influenced by the design gains; with high enough gain, the observer converges. The theoretical developments are supported by simulations.