This paper describes a compression algorithm based on 3-D discrete cosine transform (DCT) and vector quantization (VQ) in DCT domain. 3-D DCT is the extension of the conventional block-based 2-D DCT to explore the temporal correlation of video sequences in time. Instead of using scalar quantization which is normally used in popular standards, we employ VQ on the zig-zag sequence of DCT coefficients. Preliminary experimental results show that the proposed algorithm has significantly out-performed a standard MPEG-1 encoder.