In this paper we propose a novel method based on wavelet thresholding for enhancement of decompressed transform coded images. Transform coding at low bit rates typically introduces artifacts associated witht he basis functions of the transform. In particular, the method works remarkably well in "deblocking" of DCT compressed images. The method is nonlinear, computationally efficient, and spatially adaptive and has the distinct feature that it removes artifacts yet retain sharp features in the images. An important implication of this result is that iamges coded using the JPEG standard can efficiently be postprocessed to give significantly improved visual quality in the images. The algorithm can use a conventional JPEG encoder and decoder for which VLSI chips are available.