The discrete cosine transform (DCT) has been shown as an optimum encoder for sharp edges in an image (Andrew and Ogunbona, 1997). A conventional lossless coder employing differential pulse code modulation (DPCM) suffers from significant deficiencies in regions of discontinuity, because the simple model cannot capture the edge information. This problem can be partially solved by partitioning the image into blocks that are supposedly statistically stationary. A hybrid lossless adaptive DPCM (ADPCM)/DCT coder is presented, in which the edge blocks are encoded with DCT, and ADPCM is used for the non-edge blocks. The proposed scheme divides each input image into small blocks and classifies them, using shape vector quantisation (VQ), as either edge or smooth. The edge blocks are further vector quantised, and the side information of the coefficient matrix is saved through the shape-VQ index. Evaluation of the compression performance of the proposed method reveals its superiority over other lossless coders.