A highly accurate location estimation of a capsule endoscope in the gastrointestinal tract in the range of several millimeters is a challenging task, as radio-frequency signals encounter high power loss and a highly dynamic channel propagation environment. Therefore, an accurate path-loss model is required for the development of accurate localization algorithms. This paper presents an in-body path-loss model for the human abdomen region at 2.4 GHz. To develop the path-loss model, electromagnetic simulations using the finite-difference time-domain method were carried out on three different anatomical human models from the Virtual Family. A mathematical expression for the path-loss model was proposed based on analysis of the measured loss at different capsule locations inside the small intestine. The proposed path-loss model is a good approximation to model in-body RF propagation, since real measurements are not completely practical for the capsule-endoscope subject. Based on the proposed path-loss model, the article also presents the 2-D location estimation of a capsule endoscope inside the small intestine using the trilateration method as well as the non-linear least squares algorithm. It is shown that with 90% probability, the location estimation error is less than 4 cm.