This paper addresses the problem of decentralized state estimation in formations of vehicles with time-varying topologies. The proposed solution relies on the implementation of a local state observer on-board each vehicle, based only on local sensing capabilities and limited communication with neighboring vehicles, to estimate its state. The effects of changes in the formation topology over time are studied resorting to switched systems theory, and sufficient conditions for exponential stability of the global estimation error dynamics are presented for two different switching laws. The results are particularized for the case of a formation of Autonomous Underwater Vehicles (AUVs), and simulation results are presented to assess the performance of the proposed solution in the presence of measurement noise.