An adaptive model-following multimachine power system stabilizer (PSS) design technique is presented. Coordinated control signals are derived at the inputs of each generating unit using only local terminal measurements. A reference model is chosen for each machine to reflect the dynamic interaction between that machine and the rest of the interconnected network. For this purpose an adaptive parameter estimation algorithm is used off-line to obtain a linear discrete-time dynamic equivalent system for each machine with respect to the rest of the system. This model is used as the basis for defining a coordinated subsystem reference model for each generating unit. The effectiveness of the technique is demonstrated on a multimachine power system using computer simulation studies. Results show improvement in the overall system damping characteristics using the adaptive PSS in comparison to conventional stabilizers.