Forestry has for many years been a major New Zealand industry, within which the manufacture of reconstituted products from wood fiber is becoming increasingly significant. The demand for a consistently high-quality surface finish in products, such as medium density fiberboard panels, introduces inspection requirements that cannot be easily met by manual inspection. This paper discusses the development of a prototype inspection system for wood panels to detect and classify the various defect types at production rates. The range of surface defects occurring during the manufacture of this product includes those having both color and textural variations. With some of these being quite small and subtle, the processing requirements are major. The prototype uses a combination of general purpose processor and pipelined processing modules to process images obtained from the moving product.