A new lateral stability control method, which is based on vehicle sideslip angle and tire cornering stiffness estimation, is proposed to improve the lateral stability of the four-in-wheel-motor-driven electric vehicle (FIWMD-EV) in this paper. Through the lateral tire force information, vehicle sideslip angle can be estimated by the extended kalman filter (EKF). Using the estimated vehicle sideslip angle, tire cornering stiffness can be also estimated by forgetting factor recursive least squares (FFRLS). Furthermore, combining with the vehicle dynamics model, an adaptive control target model is proposed with the information on vehicle sideslip angle and tire cornering stiffness. The new lateral stability control system uses the direct yaw moment control (DYC) based on dynamic sliding mode is proposed. The performance and effectiveness of the proposed vehicle state estimation and lateral stability control system are verified by CarSim and Simulink cosimulation. Comparing with the traditional PI control algorithm, the robustness of the dynamic sliding mode controller has been demonstrated.