Abstract: In this study, Subspace System Identification (SSI) is used for power system analysis and controller design. It is too difficult to apply analytic method for analysis and controller design of an operating power system, since there are several power system components which can be modeled by high order differential equations. On the other hand, components parameter may vary during normal operation of power system. Therefore, there is a gap between the real-time behavior and analytical behavior of power systems. In this study, the difficulties that may arise when using the analytical studies are investigated using different power system models. Moreover, it is suggested to use SSI algorithms for power systems analysis and controller design. The benefits and drawbacks of subspace identification methods are studied for different power systems. An Linear Quadratic Gaussian (LQG) controller design scheme is also presented based on subspace system identification. Several comparisons investigated using computer simulations, the results expresses usefulness and easiness of proposed methods.