Trellis coded quantization (TCQ) is incorporated into a transform coding structure for encoding monochrome and color images at 1 bit/pixel. Both fixed-rate and entropy-constrained designs are considered. 256-pixel × 256-pixel, 8-b gray-level images and 24-b color images were encoded using both TCQ-based and scalar-quantizer-based schemes to provide comparisons on the basis of peak-signal-to-noise ratio and subjective image quality. Comparisons are also provided for several image coding schemes in the literature. The subjective quality of the images produced by the TCQ-based systems was significantly better than that of the scalar quantizer-based systems. The high frequency background noise, fuzziness, and block artifacts produced by the scalar-quantizer-based systems are virtually eliminated by the TCQ-based systems.