A system and method for determining a rotor time constant of an AC induction machine is disclosed. During operation of the induction motor, a flux signal is injected into a rotor flux command so as to generate a time-variant rotor flux. A voltage-current flux observer determines amplitudes of rotor flux variations resulting from the time-variant rotor flux, with the amplitudes of the rotor flux variations comprising an amplitude of a rotor flux variation based on a current model of the voltage-current flux observer and an amplitude of a rotor flux variation based on a combined voltage-current model of the voltage-current flux observer. A rotor time constant of the induction motor is then estimated based on the determined amplitudes of the rotor flux variations.