This work aims to describe the development of a prototype laser diode system along with its driver circuit and a stable microcontroller-based thermo-electric cooling system. The laser diode driver circuit was designed and simulated by using NI Multisim. The driver circuit was built using two LM317 ICs to control the voltage across the laser diode and current through the laser diode. The laser diode output power varies by varying the current across the laser diode through the driver circuit. The temperature of the laser diode rises with time, affecting the output power of the laser diode during a long period of operation. A microcontroller-based cooling system was designed and fabricated using thermoelectric coolers. The microcontroller controls the cooling system ON/OFF period to maintain the laser diode at a particular temperature by removing the excess heat produced during the lasing action. The laser diode with a microcontroller-based cooling system shows that the laser diode output power remains stable during a long period of operation.