This paper proposes a distributed real-time video stream system for underwater fish observation in the real world. The system, based on a three-tier architecture, includes capture devices unit, stream processor unit, and display devices unit. It supports variety of capture source devices, such as HDV, DV, WebCam, TV Card, Capture Card, and video compression formats, such as WMV, FLV/SWF, MJPEG, MPEG-2/4. The system has been demonstrated in Taiwan for long-term underwater fish observation. CCTV cameras and high-definition cameras are deployed on our system. Video compression methods and image processing methods are implemented to reduce network transfer flow and data storage space. Marine ecologists and end users can browse these real-time video streams via the Internet to understand the ecological changes immediately. These video data is preserved to form a resource base for marine ecologists. Based on the video data, fish detection is implemented. However, it is complicated in the unconstrained underwater environment, due to the water flow causes the water plants sway severely. In this paper, a bounding-surrounding boxes method is proposed to overcome the problem. It efficiently classifies moving fish as the foreground objects and the swaying water plants as the background objects. It enables to remove the irrelevant information (without fish) to reduce the massive amount of video data. Moreover, fish tracking is implemented to acquire multiple species of fish images with varied angles, sizes, shapes, and illumination to construct a fish category database.