Abstract: What is disclosed is a system and method for encoding and decoding chrominance values of a digital images. In one example embodiment, a digitized image comprising a plurality of pixels is received. A degree of chrominance precision is determined for a selected pixel based upon the luminance level associated with the selected pixel. Each of the chrominance values for the selected pixel are quantized based upon the chrominance precision. The quantized chrominance values for the selected pixel are then output. In such a manner, pixels associated with high or low luminance levels have chrominance values that are encoded with less precision than pixels associated with intermediate luminance levels. Varying the degree of precision of chrominance encoding corresponds directly to observed human-eye sensitivity where determining an exact color or hue of very bright or dark patches can be difficult relative to patches having an intermediate brightness. Various embodiments have been disclosed.