The aim of this article is to give an overview of some of the most important image compression tools and techniques. We start by looking at the theoretical background of data compression and describe source coding as a tradeoff between compression ratio and fidelity. Subsequently we explain the principles of PCM, DPCM, transform coding, vector quantization and entropy coding. Then we present the discrete cosine and wavelet transforms, which are the two most important transforms in image compression. Following a discussion of state‐of‐the‐art embedded wavelet compression methods, we review the JPEG, JPEG‐LS, and JPEG2000 standards for the compression of continuous‐tone images.