In this paper, an finite-difference time-domain (FDTD) algorithm for simulating propagation of EM waves in anisotropic material is presented. The algorithm is based on the auxiliary differential equation and the general polarization formulation. In anisotropic materials, electric fields are coupled and elements in the permittivity tensor are, in general, multiterm dispersive. The presented algorithm resolves the field coupling using a formulation based on electric polarizations. It also offers a simple procedure for the treatment of multiterm dispersion in the FDTD scheme. The algorithm is tested by simulating wave propagation in 1-D magnetized plasma showing excellent agreement with analytical solutions. Extension of the algorithm to multidimensional structures is straightforward. The presented algorithm is efficient and simple compared to other algorithms found in the literature. © 2012 IEEE.