This paper presents a novel vector control scheme for the sensorless control of induction motors with on-line rotor time constant adaptation. The motor speed can be estimated using only phase currents and dc-link voltage. An adaptive voltage compensation scheme is proposed to compensate nonlinearities resulted by the PWM inverter and eliminate time delay of the sensing filters. The proposed on-line rotor time constant adaptation scheme is developed from a power transfer parameter identification algorithm to reduce sensitivity due to parameter mismatch and environment change. The proposed auto-tuning sensorless control scheme has been realized using a single-chip DSP controller (TMS320C14) from Texas Instruments. Experimental results reveals the proposed auto-tuning sensorless control scheme can achieve fast transient response and maintain a wide speed control range.