Rate control plays a key role in high-efficiency video coding. For the λ domain rate control, the λ is calculated according to the allocated bits per pixel and by adaptively updating parameters. However, the selected λ is unsuitable for minimizing the distortion of the whole sequence. Considering the distortion effect in the temporal domain, a distortion propagation-based optimal λ decision algorithm is proposed. First, according to the reference ratio in the random access (RA) configuration, the distortion effect estimation function is derived with the RA main reference model. Second, based on the RDO processes of the sequence level, the group of picture level, and the frame level rate control, the special relationships of the current level λ and the down level λ are developed. Finally, with the results of the multilevel RDO processes, the temporal λ proportions are generated to obtain the reasonable λs for the different frames and coding tree units. The experimental results show that the coding performance of the proposed algorithm is significantly improved, with a good rate control accuracy.