This paper investigates the observer‐based non‐fragile control problem for a class of discrete time delay systems with measurement disturbances and controller perturbations. A simultaneous state and disturbance estimation technique is developed by designing a state observer for a descriptor system obtained from the original system. Based on this observer, the design method of a non‐fragile controller is then formulated and the controller design problem is transformed to a convex optimization problem, which can be solved by a linear matrix inequality approach. In this design, the additive and multiplicative forms of uncertainties which perturb the gains of control and observer are both considered. The resultant non‐fragile observer‐based controller guarantees that the closed‐loop system is asymptotically stable and can tolerate measurement disturbances and a certain degree of controller parameter perturbation. A numerical example is given to illustrate the effectiveness of the proposed design method. Copyright © 2009 John Wiley and Sons Asia Pte Ltd and Chinese Automatic Control Society