Abstract: A dynamic 3D wavelet transform system and method for compressing video including color or black and white signal. The method applies a so-called packed integer wavelet transform to individual video frames to generate wavelet coefficients in the spatial domain (x and y directions). The generated wavelet coefficients are compared to determine if a new frame is similar in content with the previous frame. All the similar frames are grouped together for performing the wavelet transform in the temporal domain (t direction). A frame with different content will start a new group until another different frame is reached. The comparison is based on the information of the Low-Low (LL) band in the output of the wavelet transform of each frame instead of the entire frame. The coefficients generated by the wavelet transform in the spatial domain are quantized before the wavelet transform in the temporal domain is applied to them The methods allow a hybrid 2D and 3D compression.