This paper presents the design of a wireless capsule endoscope system. The proposed system is mainly composed of a CMOS image sensor, a RF transceiver and a low-power controlling and processing application specific integrated circuit (ASIC). Several design challenges involving system power reduction, system miniaturization and wireless wake-up method are resolved by employing optimized system architecture, integration of an area and power efficient image compression module, a power management unit (PMU) and a novel wireless wake-up subsystem with zero standby current in the ASIC design. The ASIC has been fabricated in 0.18-μm CMOS technology with a die area of 3.4mm*3.3mm. The digital baseband can work under a power supply down to 0.95V with a power dissipation of 1.3mW. The prototype capsule based on the ASIC and a data recorder has been developed. Test result shows that proposed system architecture with local image compression lead to an average of 45% energy reduction for transmitting an image frame.