MicroPET II is a newly developed PET (positron emission tomography) scanner designed for high-resolution imaging of small animals. It consists of 17,640 LSO crystals each measuring 0.975 x 0.975 x 12.5 mm3, which are arranged in 42 contiguous rings, with 420 crystals per ring. The scanner has an axial field of view (FOV) of 4.9 cm and a transaxial FOV of 8.5 cm. The purpose of this study was to carefully evaluate the performance of the system and to optimize settings for in vivo mouse and rat imaging studies. The volumetric image resolution was found to depend strongly on the reconstruction algorithm employed and averaged 1.1 mm (1.4 microl) across the central 3 cm of the transaxial FOV when using a statistical reconstruction algorithm with accurate system modelling. The sensitivity, scatter fraction and noise-equivalent count (NEC) rate for mouse- and rat-sized phantoms were measured for different energy and timing windows. Mouse imaging was optimized with a wide open energy window (150-750 keV) and a 10 ns timing window, leading to a sensitivity of 3.3% at the centre of the FOV and a peak NEC rate of 235,000 cps for a total activity of 80 MBq (2.2 mCi) in the phantom. Rat imaging, due to the higher scatter fraction, and the activity that lies outside of the field of view, achieved a maximum NEC rate of 24,600 cps for a total activity of 80 MBq (2.2 mCi) in the phantom, with an energy window of 250-750 keV and a 6 ns timing window. The sensitivity at the centre of the FOV for these settings is 2.1%. This work demonstrates that different scanner settings are necessary to optimize the NEC count rate for different-sized animals and different injected doses. Finally, phantom and in vivo animal studies are presented to demonstrate the capabilities of microPET II for small-animal imaging studies.