Video capsule endoscopy (VCE) has significantly advanced visualization of the gastrointestinal tract since its introduction in the last 20 years. Work is now under way to combine VCE with microultrasound imaging. However, small maximum capsule dimensions, coupled with the electronics required to integrate ultrasound imaging capabilities, pose significant design challenges. This paper describes a simulation process for testing transducer geometries and imaging methodologies to achieve satisfactory imaging performance within the physical limitations of the capsule size and outlines many of the tradeoffs needed in the design of this new class of ultrasound capsule endoscopy (USCE) device. A hybrid MATLAB model is described, incorporating Krimholtz-Leedom-Matthaei circuit elements and digitizing and beamforming elements to render a gray-scale B-mode. This model is combined with a model of acoustic propagation to generate images of point scatterers. The models are used to demonstrate the performance of a USCE transducer configuration comprising a single, unfocused transmit ring of radius 5 mm separated into eight segments for electrical impedance control and a 512-element receive linear array, also formed into a ring. The MATLAB model includes an ultrasonic pulser circuit connected to a piezocrystal composite transmit transducer with a center frequency of 25 MHz. B-scan images are simulated for wire target phantoms, multilayered phantoms, and a gut wall model. To demonstrate the USCE system's ability to image tissue, a digital phantom was created from single-element ultrasonic transducer scans of porcine small bowel ex vivo obtained at a frequency of 45 MHz.