In this paper the explicit necessary and sufficient conditions for the existence of Luenberger reduced order observer are established. In particular, it is proven that for the given linear time-invariant system of order n, having p linearly independent outputs and m inputs, a Luenberger observer of order (n − p) can be constructed if and only if the given system is detectable. Furthermore, a procedure is given for the construction of the observer. Our approach is based on the properties of real and polynomial matrices.