To improve the performance of permanent magnet synchronous motor (PMSM) drives, a sensorless control scheme based on a novel iterative flux sliding-mode observer (IFSMO) is proposed in this paper. Two major drawbacks of the conventional sliding-mode observer (SMO), namely, chattering phenomena and high-order harmonics, are discussed. These drawbacks affect the estimation accuracy of the SMO and reduce the control reliability of the system. To eliminate high-order harmonics, a flux SMO is designed by expanding the PMSM state equations with the PM flux. The flux SMO estimates the rotor speed and position using the flux linkage instead of back-EMF information. Moreover, to reduce the chattering in the estimation results, the proposed flux SMO is iteratively used in one current sampling period to adaptively adjust the observer gain. An overall PMSM sensorless control system based on the proposed IFSMO is designed, and an experimental platform using the TMS320F28335 digital signal processor (DSP) controller is built. The superior chattering reduction and harmonic suppression characteristics of the proposed IFSMO are experimentally validated, and the experimental results verify the feasibility of using the proposed IFSMO-based PMSM sensorless scheme in practical applications.