We present a new approach to position control based on microstepping for the current regulation of permanent magnet stepper motor (PMSM), which consists of a Lyapunov-based controller and a passive nonlinear observer for output feedback controller design. It is shown, theoretically and by the means of experiments, that the Lyapunov-based controller with a passive nonlinear observer results in better position tracking performance of the microstepping using only the output feedback. The principle and stability of microstepping are shown using the Lyapunov method. The Lyapunov-based controller is developed in order to guarantee the desired current of microstepping for the improvement of the position tracking. The passive nonlinear observer is designed to estimate the full state using only the position feedback. Passivity theory is a tool to tune the observer gain for the PMSM. The observer gain tuning is simple and intuitive using the passivity theorem. Using a passive nonlinear observer results in the separation principle. (C) 2012 Elsevier Ltd. All rights reserved.