Disc pelletizer is widely used in the agglomeration process to form powdered iron ore into iron ore green pellets. The pellet size distribution (PSD) is one of the major measures of product quality. An imaging system is developed for measuring PSD in the stable area of the disc pelletizer. Image pre-processing is performed to extract the densely distributed pellets as foreground, followed by identifying surface pellets using pellet markers and K-means clustering method. Then a marker-controlled watershed algorithm is applied to segment overlapping pellets in the image. The pellet sizes and thus PSD are then obtained using circumscribed circle fitting. The proposed image-based measuring method was tested in a steel company. The measured PSD was compared with manual sieving results. It shows good accuracy for different size ranges under different pelletizing conditions. The proposed method also makes it possible to evaluate online the pellet quality.