We have developed and used a laser optoacoustic imaging system with transrectal probe (LOIS-P) for detection of mechanical lesions in canine prostates in vivo. LOIS images have been acquired with a 128-channel transrectal probe and a 32-channel data acquisition system. Optoacoustic images showed a strong contrast enhancement for a blood containing lesion, when compared with ultrasound images. Our studies demonstrated that sufficient optoacoustic contrast exists between blood containing lesion and prostate tissue, although the lesion has been undetectable with ultrasound. The imaging results have been compared with visual examination of surgically excised prostates. Although axial resolution of the wide-band transducers employed in the transrectal probe provides good axial resolution of 0.5 mm, the convex arc geometry of the this array of transducers provides lateral resolution degrading with depth in tissue. A two step algorithm has been developed to improve the lateral resolution of deeply located objects. This algorithm employs optoacoustic image reconstruction based on radial back-projection to determine location and shape of the target object, then a procedure, we call Maximum Angular Amplitude Probability (MAAP), to determine true brightness of the object and simultaneously remove arc-shaped artifacts associated with radial back-projection. A laser optoacoustic imaging system (LOIS-P) with transrectal probe operating in backward detection mode empowered with the new image reconstruction algorithm seems promising as a modality for detection of prostate cancer and guiding prostate biopsy.