The air flow supplied to a fuel cell system is one of the most significant factors in determining fuel efficiency. The conventional method of controlling the air flow is to fix the oxygen supply at an estimated constant rate for optimal efficiency. However, the actual optimal point can deviated from the pre-set value due to temperature, load conditions and so on. In this paper, the maximum efficiency point tracking (MEPT) algorithm is proposed for finding the optimal air supply rate in real time to maximize the net-power generation of fuel cell systems. The fixed step MEPT algorithm has slow dynamics, thus it affects the overall efficiency. As a result, the variable step MEPT algorithm is proposed to compensate for this problem instead of a fixed one. The complete small signal model of a PEM Fuel cell system is developed to perform a stability analysis and to present a design guideline. For a design example, a 1kW PEM fuel cell system with a DSP 56F807 (Motorola Inc) was built and tested using the proposed MEPT algorithm. This control algorithm is very effective for a soft current change load like a grid connected system or a hybrid electric vehicle system with a secondary energy source.