The performance of adaptive optics systems is partially dependant on the algorithms used within the real-time control system to compute wavefront slope measurements. We demonstrate use of a matched filter algorithm for the processing of elongated laser guide star (LGS) Shack-Hartmann images, using the CANARY adaptive optics instrument on the 4.2m William Herschel Telescope and the European Southern Observatory Wendelstein LGS Unit placed 40m away. This algorithm has been selected for use with the forthcoming Thirty Meter Telescope, but until now had not been demonstrated on-sky. From the results of a first observing run, we show that the use of matched filtering improves our adaptive optics system performance, with increases in on-sky H-band Strehl measured up to about a factor of 1.1 with respect to a conventional centre of gravity approach. We describe the algorithm used, and the methods that we implemented to enable on-sky demonstration.