An algorithm that integrates table indexing and quad-tree decomposition is proposed for cartoon image compression in this work. The proposed method includes 3 steps. First, colors in the color palette are selected based on the input image and a set of training images. Second, the input image is divided into blocks of size 16 by 16. The number of colors inside each block is checked. If the block has one uniform color or exactly two colors, no further processing is required. Otherwise, quad-tree decomposition will be performed for this block. The subdivision continues until all subblocks have either one or two colors. Then, the code for each subblock will be output in a depth-first order. If the subblock size reaches 2 x 2 and the number of colors in that block is still more than 2, no further subdivision is performed and a code that indicates colors of 4 pixels are output. Finally, to further reduce the size, the data part of the output stream is losslessly compressed by the LZW method. Experimental results are given to demonstrate the superior performance of the proposed method for cartoon image compression.