A novel fluxgate digital magnetic compass system is introduced based on fluxgate technology and two axis dip angle sensor. The algorithms of magnetic compass orientation technology are introduced. The principle of peak detection approach and the approach of digit driver is researched. The system uses Atmega16L MCU to processes the data, and to avoid stability problem caused traditional RC analog drive circuit; digital square-wave signal from the MCU is applied to directly drive the fluxgate sensor. Furthermore, the system resolution factor is guaranteed by sampling the fluxgate signal with special ADC (16bit). It has already been successfully applied to some type of digital magnetic compass.