Direct torque control algorithm for 3-level inverter-fed induction motors is proposed. Conventional selection method of the stator voltage vector shows problems of stator flux drooping phenomenon and undesirable torque control appeared especially at the low speed operation. To overcome these problems, a proposed method uses intermediate voltage vectors, which are inherently generated in 3-level inverters. An adaptive observer is also employed to estimate some state-variables and motor parameters, which takes a deep effect on the performance of the low speed operation. Simulation and experiment results verify effectiveness of the proposed algorithm.