Banknote discrimination with image recognition technology is significant in many applications. The traditional methods based on image recognition only recognize the banknote denomination without discriminating the counterfeit banknote. To solve this problem, we propose a systematical banknote discrimination approach with the dominant color and texture features. After capturing the visible and infrared images of the test banknote, we first implement the tilt correction based on the principal component analysis (PCA) algorithm. Second, we extract the dominant color feature of the visible banknote image to recognize the denomination. Third, we propose an adaptively weighted local binary pattern with “delta” tolerance algorithm to extract the texture features of the infrared banknote image. At last, we discriminate the genuine or counterfeit banknote by comparing the texture features between the test banknote and the benchmark banknote. The proposed approach is tested using 14,000 banknotes of six different denominations from Chinese yuan (CNY). The experimental results show 100% accuracy for denomination recognition and 99.92% accuracy for counterfeit banknote discrimination.