This paper aims at developing a method of rotor resistance estimation for speed sensorless indirect vector controlled induction motor drive taking the effect of magnetic flux saturation into account. A mathematical dynamic model of an induction motor as influenced by magnetic circuit saturation is presented. Moreover, a modified structure of indirect vector controller scheme is proposed which involves the saturated value of the magnetizing inductance. In this scheme, an effective online method for rotor resistance estimation is based on a modified model reference adaptive system (MRAS) to achieve high-precise control in a wide range of motor speed. The motor speed is estimated from the difference between the estimated synchronous speed and slip speed. The online magnetizing inductance estimation algorithm to operate within the rotor resistance estimation is presented. Digital simulations have been carried out in order to evaluate the effectiveness of the proposed sensorless drive system. The results have proven excellent steady-state and dynamic performances of the drive system, which confirms validity of the proposed scheme.