The effect of wall and indoor scatterers on the indoor multiple input multiple output (MIMO) communication system is investigated by using the hybrid technique of finite difference time domain (FDTD) method and method of moments (MoM). MIMO channel capacity with the wall reflection is investigated with consideration of the eigenvalue of channel covariance matrix, the received power and the effective multipaths of MIMO system. It is found that the stronger side wall reflection can lead to the higher MIMO channel capacity. MIMO system with indoor scatterers is also analyzed and compared with the line of sight (LOS) indoor MIMO system. It is found that the scatterer material has different effect on the received power and the effective multipaths of MIMO system.