An analysis of the sensitivity of an optical receiver in a digital communication system using Manchester (biphase) coding is performed. Both cases of p-i-n and avalanche photodiodes are considered. Experimental results for the sensitivity of a Manchester receiver operating at 250 Mbits/s are reported. Two types of low noise receiver amplifiers, namely the high impedance and the transimpedance amplifier, are designed and implemented for use in the receiver. A receiver sensitivity of -49.8 dBm in terms of detected optical power is obtained (at a 10-9bit error rate and 0.1 laser extinction ratio), which corresponds to only 175 average photons per bit. It is shown that in contrast to the NRZ code, the Gaussian approximation theory tends to underestimate the Manchester receiver sensitivity. Tradeoffs between Manchester and NRZ coding are also discussed in terms of receiver sensitivity and ease of implementation. It is shown that Manchester coding is an attractive alternative to NRZ coding for optical transmission systems, particularly when an avalanche photodiode is used.