This paper considers the design of reduced‐order state observers for fractional‐order time‐delay systems with Lipschitz nonlinearities and unknown inputs. By using the Razumikhin stability theorem and a recent result on the Caputo fractional derivative of a quadratic function, a sufficient condition for the asymptotic stability of the observer error dynamic system is presented. The stability condition is obtained in terms of linear matrix inequalities, which can be effectively solved by using existing convex algorithms. Numerical examples and simulation results are given to illustrate the effectiveness of the proposed design approach.