Mutual inductance of an induction machine may vary considerably when the flux reference varies. An important and frequent application of a variable flux reference is the operation in the field-weakening region. Standard assumption of constant mutual inductance is no longer valid and it becomes necessary to compensate for the mutual inductance variation. The paper proposes a novel method for online mutual inductance identification in vector controlled induction machines. The method is characterized with very simple structure, ease of implementation, very low parameter sensitivity, and capability to provide an accurate estimate under both transient and steady state operating conditions. Full experimental verification of the proposed scheme is provided and a number of potential applications in a vector controlled induction motor drive are discussed.