This paper considers the problem of disturbance localization for the system

, with disturbance

, measurement output

, and controlled output

. It is shown that the problem is solvable by using an observer if and only if

where V
*is the largest (

)-invariant subspace in

and 2
*is the least (

)-conditioned invariant subspace containing Im

. Also, it is shown that there exists a controller using an observer that achieves simultaneous disturbance localization and output deadbeat control if and only if the system is controllable modulo

and, in addition,

where O
*is the unknown input unconstructible subspace. A simple algorithm is proposed to design such a controller. This algorithm comprises those of designing the optimal output deadbeat state feedback controller and an unknown input observer.