Resetting the service indicator lights on e39 BMW's is relatively the same as with e34 cars.
The service indicator lights are reset by connecting pin 7 to pin 19 (ground) (see illustration below for pin identification.)
. The proper way to do this is to have the ignition off and place a jumper wire between pins 7 and 19 (make sure you get the right pins!). Then turn the ignition switch to position 2 (run, NOT start), when the service light goes out, turn the ignition off. This should take a few seconds for an oil reset, 8-10 seconds for an inspection reset. All green lights should come on when the service light goes out. The difference between resetting the oil service light and the inspection light is in the length of time you have the jumper in place with the ignition on. This means that if you are resetting the oil service light, you should turn off the ignition immediately after the light goes out. If you leave the jumper in too long with the ignition on, you will perform an inspection reset as well and the next service indicator will come up as an oil service rather than an inspection.
(Note: jumping pins 11 & 14 works as a remote starter, comes in handy when adjusting the valves.)
The service light reset tools that I have seen connect to 3 pins of the diagnostic connector: pin 7,14 and 19. The connection to 14 is to power the tool. The less sophisticated tool has only one switch that connects pin 7 to 19. While those pins are tied together a red LED blinks to measure time. You count blinks and manually turn off the tool after the appropriate number of counts for oil or inspection reset. The more sophisticated tool has two switches, one for oil reset, one for inspection. It must have a built in timer that jumps pin 7 to 19 for the correct time.
Notes on the latest model cars (93 on?):
(can someone please verify this?) It is claimed that the above procedure doesnt quite work on the most recent model year cars. Instead of waiting for the lights to go out, you have to disconnect the jumper between 7 and 19 while the ignition is still on.
To reset OIL SERVICE, maintain the connection for approximately 3 seconds.
To reset INSPECTION, maintain the connection for approximately 12 seconds.