An observer-based methodology for decentralized stabilization of large-scale linear time-invariant systems is presented. Each local controller is provided with available local measurements, it implements a deterministic observer to reconstruct the state of the other subsystems and uses—in a certainty-equivalent way—these estimates in the control law. The observers are designed following the principles of immersion and invariance. The class of systems to which the design is applicable is identified via a linear matrix inequality, from which the observer gains are obtained. It is shown that the use of immersion and invariance observers, instead of standard Luenberger's observers, enlarges the class of stabilizable systems. The applicability of the proposed method is illustrated with a transient stabilization controller for a two-machine power system.