A directional coupler with a high isolation characteristic for radio frequency identification reader systems is presented. Compensation capacitors are used to improve the inherently poor isolation of a microstrip directional coupler due to unequal even- and odd-mode phase velocities. The transmitter leakage signal, which is reflected by the mismatch of the antenna impedance, is substantially reduced by optimization of the compensation capacitor values and the value of an additional resistor attached to the coupling port. The proposed directional coupler exhibits an isolation of 76.8 dB, a coupling factor of 16.6 dB, and an insertion loss of 0.28 dB for a matched antenna impedance at 910 MHz. It also has an isolation of more than 60 dB for mismatched antenna load impedances corresponding to a reflection coefficient of 0.33 at 910 MHz.