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In the petroleum industry, there is a great demand for accurate level measurements and improved process control in gas/oil/water separators. This is necessary to optimize vessel performance, to avoid accidental oil discharge in produced water, and to save cost and environmental hazards from excessive use of chemical additives. It is also important to know how much sand has built up inside the separator. Improved process control has become more important lately due to the increasing demand for more compact systems. This paper presents the work done on the development of a level monitoring system utilizing scattered gamma radiation. Measurements and simulations have been used to find which measurement geometries give the required sensitivity and accuracy. It has been proven that both the sensitivity and the count rate depend strongly on the geometry of the setup and that multiple-scattered radiation dominates the detected response.