The paper presents an application of a multilayer observer to state estimation of the two-mass system. After an introduction where the topic of estimation in the field of drive system with an elastic joint is briefly presented, the main point of the paper is described. Then the mathematical model of the drive with elasticity is demonstrated. Next, the advanced control structure with PI controller and additional feedbacks from the selected states variables and load torque is shown. The classical observer is introduced later, and its drawbacks are pointed out. Next, the idea of a multilayer observer is discussed. The mathematical formulation describing the adaptation mechanism used in the observer is presented. Simulation results showing the properties of the multi-layer observer working in an open- A nd closed-loop system are included accompanied by experimental results.