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We develop a probability model for natural images, based on empirical observation of their statistics in the wavelet transform domain. Pairs of wavelet coefficients, corresponding to basis functions at adjacent spatial locations, orientations, and scales, are found to be non-Gaussian in both their marginal and joint statistical properties. Specifically, their marginals are heavy-tailed, and although they are typically decorrelated, their magnitudes are highly correlated. We propose a Markov model that explains these dependencies using a linear predictor for magnitude coupled with both multiplicative and additive uncertainties, and show that it accounts for the statistics of a wide variety of images including photographic images, graphical images, and medical images. In order to directly demonstrate the power of the model, we construct an image coder called EPWIC (embedded predictive wavelet image coder), in which subband coefficients are encoded one bitplane at a time using a nonadaptive arithmetic encoder that utilizes conditional probabilities calculated from the model. Bitplanes are ordered using a greedy algorithm that considers the MSE reduction per encoded bit. The decoder uses the statistical model to predict coefficient values based on the bits it has received. Despite the simplicity of the model, the rate-distortion performance of the coder is roughly comparable to the best image coders in the literature