The recovery of the complex oil and gas reservoir faces serious overflow, leakage and other drilling accidents. The real time information near bit annular flow information can help to identify the abnormality early, which can reduce the risk of well control effectively. In this paper, a method of electromagnetic measurement system for annular flow in the drilling process is proposed. Firstly, the theory of downhole annular flow electromagnetic measurement system based on Faraday′s law is studied. Then, the principle of downhole annular flow electromagnetic measurement system is analyzed. The virtual current density distribution and the mechanical model are deducted in detail. The optimum structure of the measurement system is obtained by the finite simulation software combined with excitation coil structure optimization and main structure mechanics analysis. Finally, the prototype of downhole annular flow electromagnetic measurement is constructed and the evaluation experiment is implemented. Experimental results show that the electromagnetic measurement prototype can reach the accuracy of around 1. Its safety factor is over 9, which satisfies the downhole annular flow measurement. The downhole annular electromagnetic measurement theory has great significance to the following research on downhole annular flow measurement and realization of early well control and secure drilling.