Abstract-The need for an efficient technique for compression of Images is ever increasing because the raw images need large amounts of disk space seems to be a big disadvantage during transmission and storage. In this paper, an efficient algorithm has been proposed for lossy image compression/decompression scheme using histogram based block optimization and arithmetic coding. Experimental result shows that the proposed algorithm gives better compression ratio as that of JPEG and some other techniques and PSNR value of decompressed image is comparable to JPEG.