There is growing interest in computer aided diagnosis applications including automatic detection of lung nodules from multislice computed tomography (CT). However the increase in the number and size of CT datasets introduces high costs for data storage and transmission, and becomes an obstacle to routine clinical exam as well as hindering widespread utilization of computerized applications. We investigated the effects of 3D lossy region-based JPEG2000 standard compression on the results of an automatic lung nodule detection system. As the algorithm detects the lungs within the datasets, we used this lung segmentation to define a region of interest (ROI) where the compression should be of higher fidelity. We tested 4 methods of 3D compression: 1) default compression of the whole image, 2) default compression of segmented lungs with masking out all non-lung regions, 3) ROI-based compression as specified in the JPEG2000 standard and 4) compression where voxels in the ROI are weighted to be given emphasis in the encoding. We tested 7 compression ratios per method: 1, 4, 6, 8, 10, 20, and 30 to 1. We then evaluated our experimental CAD algorithm on 10 patients with 67 documented nodules initially identified on the decompressed data. Sensitivities and false positive rates were compared for the various compression methods and ratios. We found that region-based compression generally performs better than default compression. The sensitivity with default compression decreased from 85% at no compression to 61% at 30:1 compression, a decrease of 25%, whereas the masked compression method saw a decreased in sensitivity on only 13.5% at maximum compression. At compression levels up to 10:1, all 3 region-based compression methods had decreases in sensitivity of 7.5% or less. Detection of small nodules (< 4mm in diameter) was more affected by compression than detection of large nodules; sensitivity to calcified nodules was less affected by compression than to non-calcified nodules.