This paper describes the design and development of a hovering AUV constructed at Cheju National University and analyses the dynamic performance of the vehicle using simulation programs. The main purpose of this AUV is to carry out fundamental tests in its station keeping, attitude control, and desired position tracking. Its configuration is similar to the general ROV appearance for underwater works and its dimensions are 0.75m*0.5m*0.5m. It has 4 thrusters of 450 watts for longitudinal/lateral/vertical propulsion and is equipped with a pressure sensor for measuring water depth and a magnetic compass for measuring heading angle. The navigation of the vehicle is controlled by an on-board Pentium III-class computer, which runs with the help of the Windows XP operating system. These give us an appropriate environment for developing various algorithms needed for developing and advancing Hovering AUV.