Conventional quantitative coronary arteriography techniques are limited for the case of small vessel diameters (diam<1.5 mm). A watergauge algorithm is proposed for accurate estimation of small vessel diameters. The algorithm consists of setting up watergauges and waterlines on intensity profiles, followed by searching for the intersections of the waterlines with the profile. The vessel paths are naturally represented by valley courses, thereby avoiding the unnecessary image inversion. The scan direction of the intensity profiles is perpendicular to the vessel direction, which is determined from the valley course. The edge points on both sides of a valley on the scanline profile are then identified using a watergauge algorithm. The term "watergauge" reflects the fact that this algorithm is independent of the ramp shape of the scanline profile. It is only dependent on the valley/peak (minima/maxima) features of the profile. Therefore, this watergauge algorithm exhibits high stability to image noise and cluttered background. The proposal of this algorithm is motivated by observing the intensity drop caused by the convolution blurring of an imaging system, under the influences of various factors including image blurring, vessel diameter, spatial orientation, and injected contrast materials. The technique is experimentally verified using physical phantoms, and the results are compared with the edge detection technique using a derivative-based method. In conclusion, the watergauge algorithm offers an effective method for diameter measurement by exploiting the local minima/maxima features of a profile, as compared with the derivative-based edge detection, which exploits the ramp behavior of the profile. Experiments show that, for lumen measurement of large vessels (diam>1.5 mm), both the watergauge algorithm and the derivative-based method produce similar results; however, for the small vessel (diam<1.5 mm), the watergauge algorithm yields better results. The success rate of the watergauge algorithm was substantially better than the derivative-based method for small vessel diameters with nonuniform or cluttered background.