The highly transient operational nature of passenger car engines makes cylinder pressure based feedback control of combustion phasing difficult. The problem is further complicated by cycle-to-cycle combustion variation. A method for fast and accurate differentiation of normal combustion variations and true changes in combustion phasing is addressed in this research. The proposed method combines the results of a feed forward combustion phasing prediction model and “noisy” measurements from cylinder pressure using an iterative estimation technique. A modified version of an Extended Kalman Filter (EKF) is applied to calculate optimal estimation gain according to the stochastic properties of the combustion phasing measurement at the corresponding engine operating condition. Methods to improve steady state CA50 estimation performance and adaptation to errors are further discussed in this research. Finally, the proposed CA50 observer was applied to a SI engine and validated with simulation and dynamometer tests using a prototype engine controller. The new method provides more responsive and accurate CA50 estimation performance than discrete low pass filter techniques.