The current state-of-the-art video coding standard, H.264, offers substantially better compression performance than earlier video coding standards. However, even with these gains, better compression is still desirable. This paper describes a macroblock-based mixed resolution video encoding system. By reducing the spatial resolution of some macroblock residuals intelligently, our preliminary experiments show up to 20% improvement in video compression efficiency compared to H.264 while maintaining good subjective video quality.