A lossless image compression algorithm based on adaptive subband decomposition is proposed. The subband decomposition is achieved by a two-channel LMS adaptive filter bank. The resulting coefficients are lossy coded first, and then the residual error between the lossy and error-free coefficients is compressed. The locations and the magnitudes of the nonzero coefficients are encoded separately by an hierarchical enumerative coding method. The locations of the nonzero coefficients in children bands are predicted from those in the parent band. The proposed compression algorithm, on the average, provides higher compression ratios than the state-of-the-art methods.