Abstract: According to the requirements of Sounding Rocket Image System, an image compression algorithm based on Discrete Wavelet Transform coding-MSPIHT Adaptive Differential Arithmetic Coding for image (MADAC), is proposed. In the algorithm, the Modified SPIHT (MSPIHT) method is used to scan and quantize the parameters of the Wavelet Transform and an adaptive differential arithmetic algorithm is designed to code the data after the quantization stage in the entropy stage. Result of experiments shows that the performance of MADAC is satisfying, and the adjustable image resolution, frame rate and compression ratio required by the Sounding Rocket Image System could be realized through MADAC. All the three stages of MADAC are easy to be implemented on hardware.