Direct model reference adaptive control is considered when the plant-model matching conditions are violated due to large changes in the plant or incorrect knowledge of the plant's mathematical structure. Because of the mismatch, the plant can no longer track the original reference model, but may be able to track a modified reference model that still provides satisfactory performance. The proposed approach uses a time-varying 'adaptive' reference model that reflects the achievable performance of the changed plant. The approach consists of direct adaptation of state feedback gains for state tracking and simultaneous estimation of the plant-model mismatch. The reference model adapts to the changed plant, and is redesigned if the estimated plant-model mismatch exceeds a bound determined via robust stability and/or performance criteria. The resulting controller offers asymptotic state tracking in the presence of plant-model mismatch as well as matched parameter deviations.