This paper describes a noncontact laser sensor for pipe inner wall inspection using the circular optical cutting method. The sensor, consists principally of a laser diode light source, an optical ring pattern generator, and a CCD camera. The generator forms the light from the laser diode into a circular pattern to project on the pipe inner wall. The light reflected or scattered by the pipe inner surface is imaged on the CCD camera. It is possible to select the proper parameters by fundamental performance analysis and simulation according to the theory of light reflection and scattering. Experiments show that with the sensor mounted on an automated moving system, pipes of interior diameter between 80 and 140 mm can be inspected with resolution of 100 µm in radius. Analysis of the pipe interior wall surface using wavelet transforms is also described.