In this article the authors propose a novel interslice coding algorithm especially appropriate for medical 3-dimensional (3D) images. The proposed algorithm is based on a video coding algorithm using motion estimation/compensation and transform coding. In the algorithm, warping is adopted for motion compensation. Then, by using adaptive mode selection, an MC residual image and original image are mixed up in the wavelet transform domain for improvement in coding performance. The mixed image is then compressed by the zerotree coding method. It is proven that the adaptive mode selection technique in the wavelet transform domain is very useful for medical 3D image coding. Simulation results show that the proposed scheme provides good performance, regardless of interslice distance, and is prospective for medical 3D image compression. Copyright (C) 1999 by W.B. Saunders Company.