A method for detecting and localizing a target tissue within the body in the presence of ambient light in which an optical contrast agent is administered and allowed to become functionally localized within a contrast-labeled target tissue to be diagnosed. A light source is optically coupled to a tissue region potentially containing the contrast-labeled target tissue. A gated light detector is optically coupled to the tissue region and arranged to detect light substantially enriched in target signal as compared to ambient light, where the target signal is light that has passed into the contrast-labeled tissue region and been modified by the contrast agent. A computer receives signals from the detector, and passes these signals to memory for accumulation and storage, and to then to image processing engine for determination of the localization and distribution of the contrast agent. The computer also provides an output signal based upon the localization and distribution of the contrast agent, allowing trace amounts of the target tissue to be detected, located, or imaged. A system for carrying out the method is also described.