Abstract: A method and apparatus for perceptual audio coding. The method and apparatus provide high-quality sound for coding rates down to and below 1 bit/sample for a wide variety of input signals including speech, music and background noise. The invention provides a new distortion measure for coding the input speech and training the codebooks, where the distortion measure is based on a masking spectrum of the input frequency spectrum. The invention also provides a method for direct calculation of masking thresholds from a modified discrete cosine transform of the input signal. The invention also provides a predictive and non-predictive vector quantizer for determining the energy of the coefficients representing the frequency spectrum. As well, the invention provides a split vector quantizer for quantizing the fine structure of coefficients representing the frequency spectrum. Bit allocation for the split vector quantizer is based on the masking threshold.