The most authoritative description of the morphophonemic rules that apply at word boundaries (external sandhi) in Sanskrit is by the great grammarian Panini (fl. 5th c. B. C. E.). These rules are stated formally in Panini's grammar, the Astadhayi group of eight chapters'. The present paper summarizes Panini's handling of sandhi, his notational conventions, and formal properties of his theory. An XML vocabulary for expressing Panini's morphophonemic rules is then introduced, in which his rules for sandhi have been expressed. Although Panini's notation potentially exceeds a finite state grammar in power, individual rules do not rewrite their own output, and thus they may be automatically translated into a rule cascade from which a finite state transducer can be compiled.