Wireless capsule endoscopy (WCE) is a state-of-the-art technology to receive images of human intestine for medical diagnostics. In WCE, the patient ingests a specially designed electronic capsule which has imaging and wireless transmission capabilities inside it. While the capsule travels through the gastrointestinal (GI) tract, it captures images and sends them wirelessly to an outside data logger unit. The data logger stores the image data and then they are transferred to a personal computer (PC) where the images are reconstructed and displayed for diagnosis. The key design challenge in WCE is to reduce the area and power consumption of the capsule while maintaining acceptable image reconstruction. In this research, the unique properties of WCE images are identified by analyzing hundreds of endoscopic images and video frames, and then these properties are used to develop novel and low complexity compression algorithms tailored for capsule endoscopy. The proposed image compressor consists of a new YEF color space converter, lossless prediction coder, customizable chrominance sub-sampler and an efficient Golomb-Rice encoder. The scheme has both lossy and lossless modes and is further customized to work with two lighting modes – conventional white light imaging (WLI) and emerging narrow band imaging (NBI). The average compression ratio achieved using the proposed lossy compression algorithm is 80.4% for WBI and 79.2% for NBI with high reconstruction quality index for both bands. Two surveys have been conducted which show that the reconstructed images have high acceptability among medical imaging doctors and gastroenterologists. The imaging algorithms have been realized in hardware description language (HDL) and their functionalities have been verified in field programmable gate array (FPGA) board. Later it was implemented in a 0.18 μm complementary metal oxide semiconductor (CMOS) technology and the chip was fabricated. Due to the low complexity of the core compressor, it consumes only 43 µW of power and 0.032 mm2 of area. The compressor is designed to work with commercial low-power image sensor that outputs image pixels in raster scan fashion, eliminating the need of significant input buffer memory. To demonstrate the advantage, a prototype of the complete WCE system including an FPGA based electronic capsule, a microcontroller based data logger unit and a Windows based image reconstruction software have been developed. The capsule contains the proposed low complexity image compressor and can generate both lossy and lossless compressed bit-stream. The capsule prototype also supports both white light imaging (WLI) and narrow band imaging (NBI) imaging modes and communicates with the data logger in full duplex fashion, which enables configuring the image size and imaging mode in real time during the examination. The developed data logger is portable and has a high data rate wireless connectivity including Bluetooth, graphical display for real time image viewing with state-of-the-art touch screen technology. The data are logged in micro SD cards and can be transferred to PC or Smartphone using card reader, USB interface, or Bluetooth wireless link. The workstation software can decompress and show the reconstructed images. The images can be navigated, marked, zoomed and can be played as video. Finally, ex-vivo testing of the WCE system has been done in pig's intestine to validate its performance.