Abstract: A method for performing color or grayscale image compression that eliminates redundant and invisible image components. The image compression uses a Discrete Cosine Transform (DCT) and each DCT coefficient yielded by the transform is quantized by an entry in a quantization matrix which determines the perceived image quality and the bit rate of the image being compressed. The present invention adapts or customizes the quantization matrix to the image being compressed. The quantization matrix comprises visual masking by luminance and contrast techniques and by an error pooling technique all resulting in a minimum perceptual error for any given bit rate, or minimum bit rate for a given perceptual error.