In this dissertation, first, we have proposed and implemented a new perceptually tuned wavelet based, rate scalable, and color image encoding/decoding system based on the human perceptual model. It is based on state-of-the-art research on embedded wavelet image compression technique, Contrast Sensitivity Function (CSF) for Human Visual System (HVS) and extends this scheme to handle optimal bit allocation among multiple bands, such as Y, Cb, and Cr. Our experimental image codec shows very exciting results in compression performance and visual quality comparing to the new wavelet based international still image compression standard - JPEG 2000. On the other hand, our codec also shows significant better speed performance and comparable visual quality in comparison to the best codec available in rate scalable color image compression - CSPIHT that is based on Set Partition In Hierarchical Tree (SPIHT) and Karhunen-Loeve Transform (KLT). Secondly, a novel wavelet based interframe compression scheme has been developed and put into practice. It is based on the Flexible Block Wavelet Transform (FBWT) that we have developed. FBWT based interframe compression is very efficient in both compression and speed performance. The compression performance of our video codec is compared with H263+. At the same bit rate, our encoder, …