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Video compression techniques have been applied routinely in order to conserve storage space and minimize bandwidth utilization in various video applications. To reduce inter-pixel redundancies inside and between video frames, video codecs (coder/decoder or compression/decompression) are mainly characterized by applying motion estimation and motion compensation (MEMC) in combination with discrete cosine transform (DCT). However, blocking artifacts are obvious from the block-based motion estimation and transformation, especially at low bit rates. Due to the intrinsic advantages of multiresolution and scalability of discrete wavelet transform (DWT), video compression techniques have been infused with exciting prospects by the beneficial integration of motion estimation and wavelet transformation. The contributions of this paper are in (1) proposing a design architecture of the wavelet-domain encoder and decoder; (2) implementing the multiresolution motion estimation and compensation method; and in (3) realizing the dynamic entropy encoding and decoding, so as to achieve more efficient video compression than the conventional spatial domain methods for low bit rate applications without the annoying blocking artifacts.