This paper proposes the control algorithm for maximum efficiency drive of PWM inverter - induction motor system with high dynamic performance. If the induction motor is driven under light load with rated magnetizing current, the iron loss is excessively large compared with the copper loss, which results in poor motor efficiency. Maximum efficiency drive of an induction motor can be achieved by controlling the magnetizing current to satisfy the optimal ratio that leads the total motor loss to be a minimum value at a given speed. The proposed control algorithm essentially uses vector control technique and adopts voltage decoupling control strategy to prevent the degradation of dynamic performance due to reduced magnetizing current. To verify the proposed method, digital simulations and experiments are carried out for a swquirrel-cage induction motor with the rating of 2.2[kW].