This paper proposes a novel sliding mode (SM) disturbance observer-based technique to diagnose demagnetization fault of interior permanent magnet (IPM) motors with stator parameter mismatch impacts eliminated. First, the IPM motor model incorporating the disturbances caused by the PM demagnetization and stator parameter mismatch is established. Then, an SM disturbance observer is constructed to identify the overall disturbance caused by all parameters, with its stability discussed by using the Lyapunov function. Third, a current-analysis-based method is developed to extract the disturbance only caused by flux linkage mismatch from the overall disturbance. Third, the extracted disturbance is adopted to calculate the real flux linkage, achieving demagnetization fault judgment and demagnetization degree calculation. Finally, experiment is conducted on two IPM motors to validate the proposed flux linkage estimation and fault diagnosis methods.