For active torsional vibration control in a turbine-generator shaft system, it is neither practical nor cost-effective to implement as many sensors as state variables. In this paper, an observer-based active control strategy is proposed to achieve an optimal control of torsional vibration on a turbine-generator shaft system. A dynamical observer is designed to estimate the system states and form a complete control system. The theoretical issues of the algorithm on observer design are discussed. Based on the theoretical design algorithm, an observer gain and a feedback control matrix are selected. In order to validate the effectiveness of the control strategy the computer analysis and experimental simulation are carried out under a cosine excitation from a 200 MW turbine-generator. The results from calculation and experiment show a robust stability and a good control effectiveness of the control system.