By means of linear matrix inequality (LMI) based Lyapunov method,a nonlinear observer was proposed for a class of Lipschitz nonlinear system with output uncertainty.The observer gain matrix was selected according to LMI with the output uncertainty satisfying Lipschitz conditions.The sufficient condition on ensuring the asymptotic stability of the observer was presented by Lyapunov method.At the same time a calculation method of the maximum Lipschitz constant was obtained.The simulation results demonstrated the effectiveness of the proposed observer.