We present a new Autonomous Underwater Vehicle (AUV) system for cooperative environmental sensing. The AUV was specifically developed as a platform for distributed, cooperative sensing in lakes and coastal areas. In this paper we describe the prerequisite subsystems for a submersible multi-robot system and their interactions. In particular, we incorporate a distributed acoustic localisation system and distributed time-sliced communication systems into an agile, 5-DOF submersible robot that is small, easy to deploy and retrieve, with a modular environmental sensor payload for relevant scientific measurements. We also developed a distributed Hardware-In-the-Loop (HIL) simulation framework to facilitate early testing of algorithms in simulation while running final binary code on the actual robot hardware. To avoid communication overhead and real-time issues, the simulation of the vehicle dynamics and all proprioceptive sensors is performed on-board. Exteroceptive sensors are simulated by vehicle-to-vehicle communication where possible, supported by a central simulation supervisor where required. Finally, we present some preliminary experimental results of the system.