A non-contact, embedded water gauge image acquisition and processing system for water level measurement is designed, which can improve the measurement and monitoring flexibility of coast and reefs tides. This system includes imaging unit, data processing unit, storage and interactive unit. For practical application, a water gauge automatic interpretation algorithm is proposed, which includes: the water gauge image collection that contains only a small scale of image using the window interception feature of the sensor, and the Sobel horizontal edge detection operator to extract features and auto-interpretation of the water gauge with the projection analysis method. The experimental results in water show that this system can achieve auto-interpretation measurement of water gauge around the clock. Under the condition that the image distance varies from 25 m to 100 m, maximum interpretation accuracy 6 mm is obtained.