Nowadays, with the rapid industrialization and population growth, the industry always finds new achievements. In all industries such as steel production factories, overhead cranes are used in order to move heavy objects. Among the problems that exist in the use of overhead cranes, suspended load sway can be the most important one; The sway arise by starting and stopping the movement of crane or blowing severe winds which may create dangers. This case will reduce the safety of workplace and employees. Therefore, the sways should be estimated and damped. Studies using electronic systems, such as image processing, visual systems and mechanical sensors (like acceleration sensors or load cells) have been done to estimate the suspended load swing angle. The disadvantages of these methods, such as the visual system can be the high cost and the error due to changing environmental conditions. In this thesis we are going to present a new and accurate method for the estimation of suspended load swing angle, based on state observer, then we damp the sways using optimal controller LQR. For this purpose, the dynamic equations of the system, including the crane and the motor, would be obtained and the control block designed. Then the results would be simulated in order to confirm the method accuracy. Keywords: Swing Angle Estimation, Overhead Crane, State Observer, LQR Controller, Oscillation damping.