An observer based nonlinear Quadratic Dynamic Matrix Control (QDMC) algorithm is developed for use with nonlinear input-output (I/O) and state space models. It generalizes and extends previously published nonlinear QDMC algorithms. The extension to I/O models is particularly important due to the increased use of neural networks and other types of nonlinear black box models in the chemical industry. Disturbance rejection and offset free tracking is addressed in a general setting utilizing concepts from filtering theory. Various kinds of disturbance models can be incorporated in the formulation. Even though nonlinear models are utilized for model prediction, the on-line optimization is formulated as a single Quadratic Program, thus preserving the computational advantages of nonlinear QDMC as compared to Model Predictive Control algorithms based on nonlinear programming techniques. The examples illustrate parameter tuning for open-loop unstable and stable processes and point out both benefits and shortcomings of the algorithm.