Estimation of hydrodynamic model parameters such as added mass parameter and drag coefficients is very crucial while mathematically modelling any underwater system. Owing to the nature of the model being coupled and its high non-linearity, estimation of these parameters becomes complicated. Various methods of parameter estimation have been currently employed, involving experiments, computational fluid analysis, and simulations, each having its own advantages and disadvantages. Most of the existing methods use sophisticated external instrumentation and experimentally estimate the parameters using computationally expensive adaptive algorithms, which may not be required or cannot be generalised to all the systems. In this paper, a simple off-line estimation method for estimating crucial hydrodynamic parameters using onboard sensors is presented. The error between the data from numerical simulations (using a mathematical model) and experiments is iteratively minimised using a gradient descent-based optimisation algorithm, by having the unknown model parameters as design variables of the error minimisation process. The method combines the properties of least squares estimation and the free decay tests, where the system can be excited with any known external inputs. A mathematical model with the unknown parameters, fully defining the behaviour of the system, is required and open loop experimental data from onboard sensors for a known input is sufficient for the estimation process, thereby eliminating the requirement of additional instrumentation. Non-linear mathematical models can be directly used in estimation, unlike few other methods which require linearisation and approximation. This method can be generalised to any system, provided sufficient information on experimental input and output, and the equivalent mathematical model of the system are available. The proposed method has been successfully implemented to estimate the added mass and drag coefficients of a standalone, single degree of freedom variable buoyancy module, ‘vBuoy’. A mathematical model defining the dynamics of the heave motion of vBuoy has been derived and the parameters involved in the model have been estimated with the proposed method. The proposed method, as well as the results, are validated by comparing the experiments and simulations at different conditions. The results showed that the proposed method was well suited for the estimation of hydrodynamic parameters of underwater systems. © 2018, JASNAOE.