A novel embedded wavelet coding algorithm for color image and video compression is proposed. A color image is first represented in YUV color space. The discrete wavelet transform of each of the three color components is then calculated separately. The luminance component is compressed with context-modeled wavelet difference reduction (CM-WDR). The chrominance components are compressed using the contextual information obtained during the coding of the luminance component. Our experimental results show that the proposed algorithm performs better than two latest wavelet-based benchmark schemes, namely CEZW and JPEG2000, in terms of color SNR and component PSNR.