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We propose a microparticle localization scheme in digital holography. Most conventional digital holography methods are based on Fresnel transform and present several problems such as twin-image noise, border effects, and other effects. To avoid these difficulties, we propose an inverse-problem approach, which yields the optimal particle set that best models the observed hologram image. We resolve this global optimization problem by conventional particle detection followed by a local refinement for each particle. Results for both simulated and real digital holograms show strong improvement in the localization of the particles, particularly along the depth dimension. In our simulations, the position precision is > or =1 microm rms. Our results also show that the localization precision does not deteriorate for particles near the edge of the field of view.