This document compares the performance of discrete cosine transform (DCT) and wavelet transform for gray scale image compression. It analyzes seven types of images compressed using these two techniques and measured performance using peak signal-to-noise ratio (PSNR). The results show that wavelet transform outperforms DCT at low bit rates due to its better energy compaction. However, DCT performs better than wavelets at high bit rates near 1bpp and above. So wavelets provide better compression performance when higher compression is required.