The photoelectric self-collimation theodolite is a kind of precision measurement system that integrates dual functions of the photoelectric autocollimator and the theodolite. The optical path of the photoelectric self-collimation theodolite consists of two parts that include the visual inner-focusing telescope system and the photoelectric self-collimation system. Firstly, the design principles and methods of the common optical path optical system are proposed. The inner-focusing telescope system with good imaging ability and the self-collimation optical system with high resolution are optimally designed. Then, the tolerance analysis and design of the multi-glue prism that influences the image quality most are carried out. And the processing tolerance value which satisfies the imaging requirement and economy is given. At last, the precision of the designed optical system is tested. The experimental results show that the self-collimation accuracy of the designed optical system is 0.6″ within the field of view of ±20″, which can meet the design requirements.