In this paper, we incorporate velocity observer design into the virtual decomposition control (VDC) strategy of an n-DoF open chain robotic manipulator. Descending from the VDC strategy, the proposed design is based on decomposing the n-DoF manipulator into subsystems, i.e., rigid links and joints, for which the decentralized controller-observer implementation can be done locally. Similar to VDC, the combined controller-observer design is passivity-based, and we show that it achieves semiglobal exponential convergence of the tracking error. The convergence analysis is carried out using Lyapunov functions based on the observer and controller error dynamics. The proposed design is demonstrated in a simulation study of a 2-DoF open chain robotic manipulator in the vertical plane.