In this paper, an adaptive observer design with parameter identification for a nonlinear system with external perturbations and unknown parameters is proposed. The states of the nonlinear system are estimated by a nonlinear observer and the unknown parameters are also adapted to their values. Sufficient conditions for the stability of the adaptive observer error dynamics are derived in terms of linear matrix inequalities. Simulation results for chaotic Lorenz systems with unknown parameters in the presence of external perturbations are given to illustrate the effectiveness of our proposed approach.