This　paper　designs　an　observer-based　output　feedback　controller　for　traffic　flow　with　stop-and-go　waves　and　disturbances　in　order　to　dissipate　traffic　congestion.　The　macroscopic　traffic　flow　dynamics　in　the　congestion　regime　is　described　by　the　linearized　Aw-Rascle-Zhang　(ARZ)　traffic　flow　model　over　a　time-varying　moving　spatial　domain,　and　according　to　the　Rankine-Hugoniot　condition　and　the　characteristic　velocities　of　the　ARZ　model,　a　novel　propagation　model　of　the　stop-and-go　waves　is　proposed.　To　stabilize　the　traffic　state　and　the　stop-and-go　waves,　and　to　suppress　traffic　disturbances,　an　observer-based　output　feedback　controller　is　designed　by　using　the　PDE　backstepping　method.　The　controller　utilizes　the　estimated　state　of　an　observer,　which　is　constructed　based　on　boundary　measurements　only.　The　exponential　stability　of　the　closed-loop　system　in　the　H-1　norm　is　proved　by　the　Lyapunov　analysis.　Finally,　the　effectiveness　of　the　controller　for　stabilizing　the　traffic　state　with　stop-and-go　waves　and　disturbances　is　verified　by　numerical　simulations.