Particle diagnostics involving three dimensional distributions are important topics in many engineering fields. The holographic system is a promising optical tool for measuring three dimensional features of particles. In this study, we developed a holographic particle diagnostic system with diffused illumination to measure the sizes and 3-D velocities of moving particles using automatic image processing. First, basic optical systems for pulse laser recording, continuous laser reconstruction, and image acquisition were constructed. One of inherent limitations of particle holography is its long depth of focus in particle images, which causes considerable difficulty in determination of particle positions in the optical axis. To solve this problem, three new auto-focusing parameters (AFPs) corresponding to particle sizes were introduced. The developed system was applied to spray droplets to validate its capabilities. Three dimensional positions of particles viewed from two sides were decided using AFPs and then three dimensional particle velocities were extracted using a particle tracking algorithm. Comparison of measured sizes and three dimensional velocities of particles with those obtained using a laser instrument, PDPA (Phase Doppler Particle Analyzer), showed that the developed holographic system produced consistent results.