With the rapidly progress of internet technology, large scale integrated circuit and computer technology, digital image processing technology has been greatly developed. Vector quantization technique plays a very important role in digital image compression. It has the advantages other than scalar quantization, which possesses the characteristics of higher compression ratio, simple algorithm of image decoding. Vector quantization, therefore, has been widely used in many practical fields. This paper will combine the wavelet analysis method and vector quantization E<sub>n</sub> encoder efficiently, make a testing in standard image. The experiment result in PSNR will have a great improvement compared with the LBG algorithm.