A novel predictive generator out-of-step protection and transient stability monitoring scheme is presented. It is based on real-time dynamic monitoring of the system, enabled by a distributed dynamic state estimator (DSE). DSE utilizes local synchronized and nonsynchronized measurements and provides the evolution of the system's dynamic state at rates of 60 times/s. The real-time dynamic model is then utilized to evaluate the system's energy function based on Lyapunov's direct method, estimate the stability barrier, and characterize its stability. The two major components of the scheme are: 1) the calculation of the system's center of oscillations and 2) the derivation in real time of an equivalent, reduced size model used for the calculation of the generator stability barrier and its stability characterization. It is shown that the major advantage of the proposed scheme, compared with legacy generator impedance relay-based out-of-step protection, is that the out-of-step condition is predicted before its occurrence and the generator can be tripped much faster than the traditional scheme. The theoretical background of the scheme and application on an actual system are presented. The proposed scheme characterizes very accurate potential generator instability and predicts generator loss of synchronism before its occurrence, before the generator slips a pole.