The accuracy of all the schemes that belong to vector controlled induction machine drives is strongly affected by parameter variations. The aim of this paper is to examine iron losses and magnetic saturation effect in sensorless vector control of induction machines. At first, an approach to induction machine modelling and vector control scheme, which account for both iron loss and saturation, is presented. Then, a model reference adaptive system (MRAS) based speed estimator is developed. The speed estimation is modified in such a way that iron losses and the variation in the saturation level are compensated. Thus by substituting an artificial neural network flux estimator into the MRAS speed estimator. Experimental results are presented to verify the effectiveness of the proposed approach.