In this paper a new fuzzy adaptive cancellation control scheme is presented. The basic part of the fuzzy adaptive cancellation controller is the inverse fuzzy model, which is given in the form of a fuzzy relational matrix. The fuzzy adaptive controller has been evaluated by implementation on heat-exchanger plant, which exhibits nonlinear and time-varying behaviour. To realize on-line identification, a recursive fuzzy identification algorithm based on the relational matrix has been developed. This identification algorithm offers very fast convergence of estimated parameters and the advantage of implicitly estimated operating point. It is shown that for mutable processes the adaptive fuzzy cancellation controller is superior to the classical model-reference adaptive control.