By combining the capability of a differential absorption lidar (DIAL) and the excellent characteristics of a micro pulse lidar (MPL) we have designed and tested a micro pulse DIAL system, which could be operated from the ground or airborne platform, to monitor the atmospheric water vapor mixing ratio. To maintain the compact and rugged optical frame work of an MPL it employs a diode pumped tunable Cr:LiSAF laser operating at 825 - 840 nm range, a fiber optic beam delivery system, and an APD photon counting detector. The system parameters were optimized through extensive DIAL simulations, and the design concept was tested by building a breadboard lidar system. Based on the results of the simulations and the performance of the breadboard lidar the Micro Pulse DIAL system design has been refined to (1) minimize scattered laser light - the major source of signal induced bias, (2) permit near field measurements from less than 400 m, (3) produce a compact, rugged, eye-safe instrument with a day and night operating capability. The lidar system is expected to provide 150 m vertical resolution, high accuracy (approximately 5%), and 3 km range looking up from the ground.