An algorithm has been developed for estimating total and multiyear sea ice concentration from passive microwave and surface air temperature measurements. The algorithm was made for use with Nimbus 7 scanning multichannel microwave radiometer (SMMR) data. It is based on radiation physics and may thus easily be modified to suit other passive microwave instruments. A comparison between Nimbus 7 SMMR and aircraft microwave measurements indicates that estimates of total ice concentration are accurate to ±3% and those of multiyear ice concentration to ±10%. These accuracies are not valid during the melt season when the snow on the ice is wet. For the first time such a comparison of independent estimates has been performed to validate the capability of measuring sea ice coverage from space. The ability of the SMMR to follow moving patches of multiyear ice and of rain/wet snow areas has been demonstrated. From the concentration estimates the sharpness of the ice edge can be estimated. The need for accurate concentration estimates for reliable heat budget estimates in the Arctic is also discussed.