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The paper describes a design of a microcode-controlled state machine and its software implementation in the Atmel AVR microcontrollers. In particular, the microcontrollers ATmegal03 and ATmegal28 are used. This design is closely related to a software implementation of a simulator in AVR microcontrollers. This simulator communicates with the designed state machine and presents a complete design environment for microcode development and debugging. Both of these devices can be interconnected by a flat cable and linked to a computer through a serial or USB interface. Both devices share the control software that allows us to create and edit microprograms and to control the whole state machine. It is possible to start, cancel or step through the execution of microprograms. The operator can observe the current state of the state machine, too. The second part of the control software enables the operator to create and compile simulating programs. The control software communicates with both devices using commands. All the results of this communication are well arranged in dialog boxes and windows.