Image compression is a top priority today due to the need for faster encoding and decoding. To achieve this, the present study has proposed the use of Canonical Huffman Coding (CHC) as an entropy coder, which has a lower decoding time complexity than binary Huffman codes. For image compression, combining of the Discrete Wavelet Transform (DWT) and CHC with Principal Component Analysis (PCA) has been recommended. The lossy method has been introduced by using PCA, followed by DWT and CHC to enhance compression efficiency. By using DWT and CHC instead of PCA alone, the reconstructed image has been found to have a better peak signal-to-noise ratio (PSNR) value. This study has developed a hybrid compression model combining the advantages of DWT, CHC and PCA. With the increasing use of image data, better image compression techniques are necessary for efficient use of storage space. The proposed technique has achieved up to 60% compression while maintaining high visual quality. This method has also outperformed the currently available techniques in terms of both PSNR (in dB) and bit-per-pixel (bpp) scores. This approach has been tested on various color images, including Peppers 512×512 and Couple 256×256, showing improvement by 17 dB and 22 dB, respectively, while reducing bpp by 0.56 and 0.10, respectively. For grayscale images, i.e., Lena 512×512 and Boat 256×256, the proposed method has shown an improvement by 5 dB and 8 dB, respectively, with a decrease of 0.02 bpp in both cases.