A mixed compression algorithm for error-diffusion image that could overcome the disadvantages of the conventional binary image loss coding techniques and combined with the inverse half toning method was proposed. Look-Up-Table (LUT) inverse half toning method was used to convert error-diffusion image back to the contone image, then an improved Discrete Cosine Transform (DCT) coding algorithm was constructed to get higher compression rate. The experimental results indicate that the proposed algorithm fits to the error-diffusion image, and the quality of the decoding image is well.