A new modular and programmable wireless capsule endoscope is presented in this paper. The capsule system consumes low power and has small physical size. A new image compression algorithm is presented in this paper to reduce power consumption and silicon area. The compression algorithm includes color space transform,uniform quantization, sub-sampling, differential pulse code modulation(DPCM) and Golomb-Rice code. The algorithm is tested in a field programmable gate array(FPGA) development board, and the final result achieves 80% compression rate at 40 dB peak signal to noise ratio(PSNR). The algorithm has high image compression efficiency and low power consumption, compared to other existing works. The system is composed of the following three parts: image capsule endoscope, portable wireless receiver and host computer software. The software and hardware design of the three parts are disscussed in details. A new modular and programmable wireless capsule endoscope is presented in this paper. A new image compression algorithm is presented in this paper to reduce power consumption and silicon area. The compression algorithm includes color space transform, uniform quantization, sub-sampling, differential pulse code modulation (DPCM) and Golomb-Rice code. The algorithm is tested in a field programmable gate array (FPGA) development board, and the final result achieves 80% compression rate at 40 dB The algorithm has high image compression efficiency and low power consumption, compared to other existing works. The system is composed of the following three parts: image capsule endoscope, portable wireless receiver and host computer software. software and hardware design of the three parts are disscussed in details.