A new contour-based postprocessing scheme for encoded images that reduces quantization artifacts near edges and improves perceptual quality is proposed. Based on extracted contour information, our scheme selectively processes the image along edges. This scheme works very effectively by removing distortions around edges while at the same time avoiding edge blurring. Furthermore, edges are sharpened by independent directional filtering of each side of the edge, thereby enhancing perceptual quality. We demonstrate a visually distinctive improvement in perceptual quality for images coded at low rates based on vector quantization and transform coding techniques.