State of health (SOH) of batteries in electric and hybrid vehicles can be observed using some battery parameters. Based on a resistance–capacitance circuit model of the battery and data obtained from abundant experiments, it was observed that the diffusion capacitance shows great correlation with SOH of a lithium-ion battery. However, accurate measurement of this diffusion capacitance in real time in an electric or hybrid electric vehicle is not practical. In this paper, Genetic Algorithm (GA) is employed to estimate the battery model parameters including the diffusion capacitance in real time using measurement of current and voltage of the battery. The battery SOH can then be determined using the identified diffusion capacitance. Temperature influence is also considered to improve the robustness and precision of SOH estimation results. Experimental results on various batteries further verified the proposed method.