We present a new image coding technique called hierarchical block truncation coding (HBTC). HBTC is a combination of the block truncation coding (BTC) technique and the quadtree segmentation method. Quadtree segmentation is used to decompose an image into homogeneous regions so that the BTC method can exploit the nonstationary characteristics of the image data. The resulting bit rate is lower than that of conventional BTC, depending on the characteristics and complexity of the digital image. We investigated the performance of the encoder on both still and moving images. A small reduction in the bit rate is achievable for still images, but false contours become apparent as the rate declines. The proposed method works well on difference images from a sequence since the moving areas are encoded with greater resolution than the stationary background. A significant bit rate reduction is seen for sequence transmission. The bit rate is reduced from the 1.625 bits per pixel (bpp) required for a conventional BTC implementation down to 1.19 bpp for the least detailed still image. A typical CCITT image sequence was encoded at an average rate of 1.21 bpp. The bit rate was further reduced to an average of 0.39 bpp with a small degradation in the quality of the reconstructed images by transmitting only the most varying portions of the sequence.