On the basis of three-dimensional finite-difference time-domain method, the mode and unidirectional-emission characteristics for a 5 μm-radius microcavity laser with radial waveguide are studied. Q factors and mode field patterns for high-Q transverse electric mode near the wavelength of 1550 nm are obtained. An AlGaInAs/InP circular microcavity laser with radius of 5 μm is fabricated by semiconductor planar processing technology, with a 1 μm wide output waveguide directly connected to the cavity. Continuous single mode lasing is achieved with a threshold current of 4 mA at the temperature of 298 K. The side mode suppression ratio of the laser is 33.4 dB when the injection current is 9 mA. On the basis of rate equation, the laser model intensity is fitted with the change of the injection current, and the spontaneous emission factor of the laser is about 5.5×10-3.