We are developing a 1-mm ³ resolution, high-sensitivity positron emission tomography (PET) system for loco-regional cancer imaging. The completed system will comprise two 16.5 × 10 cm detector panels and contain 4608 position sensitive avalanche photodiodes (PSAPDs) coupled to arrays of 0.9 × 0.9 × 1 mm ³ LYSO crystal elements for a total of 294912 crystal elements. For the first time, this paper summarizes the design and reports the performance of a significant portion of the final clinical PET system, comprising 1 536 PSAPDs, 98304 crystal elements, and an active field-of-view (FOV) of 16.5 × 3.3 cm. The sub-system performance parameters, such as energy, time, and spatial resolutions are predictive of the performance of the final system due to the modular design. Analysis of the multiplexed crystal flood histograms shows 84% of the crystal elements have > 99% crystal identification accuracy. The 511 keV photopeak energy resolution was 11.34 ± 0.06% full-width half maximum (FWHM), and coincidence timing resolution was 13.92 ± 0.01 ns FWHM at 511 keV. The spatial resolution was measured using maximum likelihood expectation maximization reconstruction of a grid of point sources suspended in warm background. The averaged resolution over the central 6 cm of the FOV is 1.01 ± 0.13 mm in the X-direction, 1.84 ± 0.20 mm in the Y-direction, and 0.84 ± 0.11 mm in the Z-direction. Quantitative analysis of acquired micro-Derenzo phantom images shows better than 1.2 mm resolution at the center of the FOV, with subsequent resolution degradation in the y-direction toward the edge of the FOV caused by limited angle tomography effects.