By combining together the extended Kalman filter with a newly developed C&I particle swarm optimization algorithm (C&I-PSO), a novel estimation method is proposed for parameter estimation of electromechanical oscillation, in which critical physical constraints on the parameters are taken into account. Based on the extended Kalman filtering algorithm, the constrained parameter estimation problem is formulated via the projection method. Then, by utilizing the penalty function method, the obtained constrained optimization problem could be converted into an equivalent unconstrained optimization problem; finally, the C&I-PSO algorithm is developed to address the unconstrained optimization problem. Therefore, the parameters of electromechanical oscillation with physical constraints can be successfully estimated and better performed. Finally, the effectiveness of the obtained results has been illustrated by several test systems.