Microsatellite instability (MSI) is characterized by the expansion or contraction of DNA repeat tracts as a consequence of DNA mismatch repair deficiency (MMRD). Accurate detection of MSI in cancer cells is important since MSI is associated with several cancer subtypes and can help inform therapeutic decisions. Although experimental assays have been developed to detect MSI, they typically depend on a small number of known microsatellite loci or mismatch repair genes and have limited reliability. Here, we report a novel genome-wide approach for MSI detection based on the global detection of insertions and deletions (indels) in microsatellites found in expressed genes. Our large-scale analyses of 20 cancer cell lines and 123 normal individuals revealed striking indel features associated with MSI: there is a significant increase of short microsatellite deletions in MSI samples compared to microsatellite stable (MSS) ones, suggesting a mechanistic bias of repair efficiency between insertions and deletions in normal human cells. By incorporating this observation into our MSI scoring metric, we show that our approach can correctly distinguish between MSI and MSS cancer cell lines. Moreover, when we applied this approach to primal tumor samples, our metric is also well consistent with diagnosed MSI status. Thus, our study offers new insight into DNA mismatch repair system, and also provides a novel MSI diagnosis method for clinical oncology with better reliability.