An image coding algorithm ESPIHT (extended set partitioning in hierarchical trees) based on fast lifted wavelet transform and human visual system is proposed in this paper. It can be regarded as an improved version of the SPIHT algorithm. However, unlike SPIHT, the fast lifted wavelet transform (FLWT) is used, the extended zerotree structure is redefined, and the human visual system (HVS) is taken into account sufficiently in the compression algorithm. The experimental results show that the new image compression scheme performs better than that of SPIHT in the aspects of recovery image quality and coding/decoding time.