Abstract: A method is provided for data compression and image enhancement in a digital facsimile document transmission system. The method permits images containing gray scale content to be reproduced using conventional facsimile equipment. An irregularly shaped matrix of thresholds is employed in an adaptive approach to convert each multilevel gray scale pixel to a bilevel (black/white) pixel. The adaptive thresholding approach employed provides improved image quality in images containing both gray scale and high contrast information, e.g., identification cards. Compression performance is enhanced by an image rearrangement process in which pixels thresholded with similar threshold values are grouped together prior to run length encoding.