A method for estimating the capacity of a vehicle battery while in service. The method includes providing a previous battery state-of-charge, battery temperature and integrated battery current amp-hours, and determining that battery contactors have been closed after they have been opened and disconnected from a load. The method determines if the battery has been at rest for a long enough period of time while the contactors were open, where the battery rest time is based on battery temperature, and determines an initial battery voltage from a last time step when the battery contactors were closed prior to the contactors being open during the battery rest time. The method determines a present battery state-of-charge from the initial battery voltage and the battery temperature and calculates the battery capacity based on the battery integrated current amp-hours divided by the difference between the present battery state-of-charge and the previous battery state-of-charge.