This paper proposes a novel current control scheme for vector-controlled induction machine (IM) drives in the overmodulation (OVM) range, with which the voltage utilization of the voltage-source inverter (VSI) can be maximized. In the OVM region, the original voltage reference is modified by changing its magnitude and angle, which causes the motor current to be distorted, resulting in a deterioration of the current control performance. To meet with this situation, the harmonic components in the feedback currents should be eliminated before being input to the PI current controllers. For this, a composite observer is applied to extract the fundamental and harmonic components from the distorted currents, which gives a good performance without a delay and the effect of a fundamental frequency variation. In addition, through a detailed analysis of the response of the PI current controllers in the OVM range, the effectiveness of using the composite observer is demonstrated. Simulation and experimental results for a 3-kW induction motor drive are shown to verify the validity of the proposed method.