A new adaptive algorithm for image interpolation with perceptual edge enhancement is proposed. Here, perceptual means that edges are enhanced and interpolated in a visually pleasing way. Each pixel neighborhood is classified into one of three categories (constant, oriented, or irregular). In each case, an optimal interpolation technique finds the missing pixels without generating unpleasant artifacts such as aliasing or ringing effects. Furthermore, a quadratic Volterra filter is employed to extract perceptually important details from the original image, which are then used to improve the overall sharpness and contrast. Both qualitative and quantitative simulation results clearly show the superiority of our method over standard low-pass interpolation algorithms such as bilinear, diamond-filter, or B-spline interpolation.