The watermark is an important part in banknote for anti-counterfeiting. There are some watermark mistakes which are made in printing process, so investigating the inspection system is very important for banknote printing plant. The former inspection method is to adopt artificial inspection, it needs a lot of time and laboring, and it can't guarantee the stability of the product quality. Applying machine vision technique into printing industry can realize the on-line inspection for banknote watermark's quality.Based on the studying of machine vision technique, the hardware system for watermark's quality inspection was designed and then each part of the hardware system was selected according to demand of imaging quality. For inspection method, the advantage and shortcoming of the traditional template matching method was first analyzed in this paper, and then put forward to adopt a kind of fast template matching algorithm based on the SSDA. This algorithm can realize efficiently banknote watermark's quality automatic on-line inspection based on template matching, and it has many advantages, such as fast speed, high inspection quality etc. Based on the above hardware system and algorithm, the software system was developed using Visual C++ language, and then experimental study was made on the actual products. The experimental result shows that the system has good inspection performance for banknote watermark's quality inspection at different applying situation and different exterior environment.