The speed governor and excitation control functions are rarely incorporated into existing power plant computer control structures. However, current research trends indicate a growing interest in the integration of these functions into the computer control hierarchy. To this end, several control schemes have been proposed for replacing the main governor and excitation control functions as well as the conventional power system stabilizer (PSS) with online controllers at the generating unit level. A digital PSS design technique for a multimachine power system suitable for easy integration into the power system control hierarchy at the generating plant level is presented. The adaptive PSS design algorithm is based on the decentralized model reference adaptive control concept using Lyapunov function methods. The effectiveness of the proposed technique is demonstrated on a multimachine power system using computer simulation studies. Results show an improvement in the overall system damping characteristics using the proposed adaptive controller in comparison to those obtained using other digital controllers.