With the development of Internet technology, the traditional static password based authentication solutions are no longer an adequate protection scheme to serious enterprise applications. In this article, the principle of dynamic password technology is described, and the pros and cons of implementing dynamic password technology by software and hardware are analyzed as well. A dynamic password authentication protocol based on challenge/response mechanism is designed. The system’s design authentication processes, and safety measures are described, and its security is analyzed as well. The analysis indicates that this system features high security and wide application. It can be conveniently used and implemented at a low cost.