This article deals with the problem of distributed observer design containing time delays for uncertain nonlinear distributed generators systems in alternating current–islanded micro grids. In contrast with the centralized observer with the ability to accumulate full output of the plant, we design a set of distributed observers, each having access to partial output of the plant through a distributed observer network. Each observer obtains partial plant output and communicates with its neighboring observers through consensus network. The design method is based on the Lipschitz condition of uncertain nonlinear terms while having time-delay system in view. Suitable selection of Lyapunov functions is made, and the Jensen inequality is considered in delayed uncertain nonlinear micro grids in an undirected network. Furthermore, via design algorithm, the necessary and sufficient conditions for the design of parameters are determined so as to stabilize the error dynamics. Finally, numerical simulations are provided to consider the effectiveness of the proposed method.