In this paper, we propose a non-stationary stochastic filtering framework for the task of albedo estimation from a single image. There are several approaches in literature for albedo estimation, but few include the errors in estimates of surface normals and light source directions to improve the albedo estimate. The proposed approach effectively utilizes the error statistics of surface normals and illumination direction for robust estimation of albedo. The albedo estimate obtained is further used to generate albedo-free normalized images for recovering the shape of an object. Illustrations and experiments are provided to show the efficacy of the approach and its application to illumination-invariant matching and shape recovery.