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This paper proposes to develop a high precision MWD (measurement while drilling) system based on microcontroller. The advanced ISP (in system programming) technology is applied to develop the system, which shortens system developing time, simplifies system upgrade, and declines the cost in system development. A/D module completes data acquisition of seven channel sensor signals, and the related data is displayed by the LCM. The microcontroller communicates with PC through RS232. The PC software uses VC++6.0 as development environment, which realizes friendly human-computer interaction interface. After testing, the system has high precision and good stability, which responds to the need for directional drilling operations, has considerable practical value.