A system and method for estimating vehicle lateral velocity. The method uses a kinematic estimator constructed as a closed-loop Leunberger observer. The kinematic estimator is based on a kinematic relationship between lateral acceleration measurement and rate of change of lateral velocity. The method provides measurement updates based on virtual lateral velocity measurements from front and rear axle lateral force versus axle side-slip angle tables using the lateral acceleration, yaw-rate, longitudinal speed, and steering angle measurements. The method calculates front and rear axle lateral forces from the lateral acceleration and yaw-rate measurements. The method estimates front and rear axle side-slip angles from the calculated front and rear axle lateral forces using the tables. The method calculates multiple virtual lateral velocities from the front and rear side-slip angles and selects one of the virtual lateral velocities that minimizes an error between a measured force and an estimated force as the lateral velocity.