Series active filter (SAF) is generally utilized in compensating harmonic voltage source-type loads. In this paper, a combined action of controller and observer is proposed for SAF. Full state feedback (SFB) and Linear Quadratic Regulator (LQR) controllers are posited in order to estimate states, output, and fault. SFB utilizes the pole placement method, whereas LQR utilizes the tuning of matrices by Bryson’s rule. Luenberger observer (LO) and Proportional-Integral observer (PIO) were also designed. The efficacy of this scheme is illustrated through the simulations, both in the absence as well as in the presence of faults. The state and output dynamics of SFB and LQR-based control of SAF with LO and PIO in fault-free and faulty cases are compared. It can be clearly seen through simulations that the state and output dynamic response of LQR-based control of SAF is faster when compared to SFB-based control of SAF in both cases. Further, LO and PIO track immaculately the desired step reference input in the absence of fault, but LO established a steady state error between the actual state, its estimate and output, with reference to desired input, in the presence of a fault. PIO eradicates this steady-state error and it perfectly tracks the desired input even in the presence of fault. Furthermore, PIO also estimates the fault.