Aim: Fundus image analysis is the basis for the better understanding of retinal diseases which are found due to diabetes. Detection of earlier markers such as microaneurysms that appear in fundus images combined with treatment proves beneficial to prevent further complications of diabetic retinopathy with an increased risk of sight loss. Methods: The proposed algorithm consists of three modules: (1) image enhancement through morphological processing; (2) the extraction and removal of red structures, such as blood vessels preceded by detection and removal of bright artefacts; (3) finally, the true microaneurysm candidate selection among other structures based on feature extraction set. Results: The proposed strategy is successfully evaluated on two publicly available databases containing both normal and pathological images. The sensitivity of 89.22%, specificity of 91% and accuracy of 92% achieved for the detection of microaneurysms for Diaretdb1 database images. The algorithm evaluation for microaneurysm detection has a sensitivity of 83% and specificity 82% for e-ophtha database. Conclusion: In automated detection system, the successful detection of the number of microaneurysms correlates with the stages of the retinal diseases and its early diagnosis. The results for true microaneurysm detection indicates it as a useful tool for screening colour fundus images, which proves time saving for counting of microaneurysms to follow Diabetic Retinopathy Grading Criteria.