Wireless capsule endoscopy (WCE) is used to diagnose lesions in the gastrointestinal (GI) tract. The physicians require to know the exact position of the lesions which can be performed by localizing the WCE in the GI tract. In this paper, we propose ultra-wideband (UWB) path loss-based WCE localization and compute the Cramer–Rao lower bound (CRLB) to evaluate the accuracy bounds of localization in the small intestine. First, we propose the estimation of smoothed path loss by minimizing the path loss deviations caused by shadow fading effects of body tissues. Then, the estimated path loss is used to estimate the degree of path loss and to compute the weight of the sensor's positions. Finally, we propose the smoothed path loss degree-based weighted centroid localization (SPLD-WCL) algorithm to estimate the location of the WCE. We simulate the proposed SPLD-WCL algorithm and verify the accuracy by comparing it to the computed CRLB. The proposed SPLD-WCL localization algorithm shows a significantly high accuracy of localization with a 6.83 mm root mean square error (RMSE) without any advanced knowledge of unknown parameters and bounds.