Counterfeit notes are one of the biggest problem occurring in cash transactions. For country like India, it is becoming big hurdle. Because of the advances in printing, scanning technologies it is easily possible for a person to print fake notes with use of latest hardware tools. Detecting fake notes manually becomes time-consuming and untidy process hence there is need of automation techniques with which currency recognition process can be efficiently done. Many techniques have been proposed with the use of feature extraction with HSV color space and other applications of image processing. We have implemented a fake note detection unit with MATLAB algorithm. This paper is a based on the Image Processing and UV LED’s to give solution for fake currency problem. mutual testing of all notes in transactions is very time consuming and untidy process and also there is a chance of tearing while handing notes. Therefore, Automatic methods for bank note recognition are required in many applications such as automatic selling-goods and vending machines. Extracting sufficient monetary characteristics from the currency image is essential for accuracy and robustness of the automated system. This is a challenging issue to system designers. Every year RBI (Reserve bank of India) face the counterfeit currency notes or destroyed notes. Handling of large volume of counterfeit notes imposes additional.