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This paper presents the viability of magnetic sensing technology for a low-cost, efficient and comfortable in vivo tracking system. The proposed tracking system is used for real-time localization of an endoscopic capsule intended for targeted drug delivery in the human gut. Magnetic sensing technology provides the optimum solution for in vivo tracking with much better performance than RF and ultrasounds. A modified mathematical model is used to find the distance between the magnet and the sensor. A linear tracking algorithm is developed to find the coordinates of the capsule in real-time. The paper also presents the system testing results for various sensor configurations. The minimum average error achieved is 1.82cm/9.1% with eight magnetic sensors in a 2-plane sensor configuration.