Automatic License Plate Recognition (LPR) is a technique involving image processing which is used to identify a vehicle by reading its license plate. In this paper we propose a system which is capable of extracting the license plate region from the vehicle's image taken from its rear end. The system consists of a digital camera, software to interface the camera with the software module and the software module which extracts and recognizes the license plate number. The camera captures the image of pre-defined resolution and passes it to the software module. The software module forms the heart of the entire system. It analyzes the input image, identifies the location of the license plate, segments the characters on it and recognizes the characters. The plate region is extracted by using the concept of connected components in the image (mathematical morphology). The characters in the license plate were segmented using digital image labeling and character recognition was done using template matching. The algorithm was implemented in MATLAB and the results obtained agreed with theoretical predictions. The first part of the paper discusses related works and areas of application. The later part of the paper shows experimental verification of the algorithm and test results.