In this paper, a state and extended disturbance observer (DO) is designed for mismatched uncertain systems. Apart from system states and disturbances, the proposed observer estimates the derivatives of the disturbances and thereby improves the accuracy of estimation of disturbances as well as the states. No knowledge of bounds of disturbances or their derivatives is assumed. An observer–controller combination for a sliding mode controller that requires the estimates of the derivatives of disturbances is described, and the ultimate boundedness of the overall system is proved. The proposed observer is illustrated by simulation of a numerical example and a rotary hydraulic actuator. The proposed observer–controller combination is validated on a serial flexible joint manipulator in laboratory.