In this paper, the Extended Kalman Filter (EKF) estimation technique is applied to a novel hydrostatic actuation system referred to as the Electrohydraulic Actuator (EHA). A state space model of the EHA is developed and the effective bulk modulus is estimated in simulation. The EHA is a high performance actuation system capable of moving large loads with very high accuracy and precision. In a practical situation, this parameter is very difficult to measure directly as it depends on entrained air which cannot be known at a particular point of time. The bulk modulus is critical for system response and a low bulk modulus as a result of air in the system can seriously hinder the performance of EHA and cause safety problems.