In order to realize the efficient disposal of rocket telemetry image and optimize its encoding process, a new encoding method of rocket telemetry image based on wavelet transform is put forward. On the basis of image wavelet transform, the modified Set Partitioning In Hierarchical Tree(SPIHT) algorithm is adopted to realize the bit flat encoding of important wavelet coefficient in the image by the encoding unit of space direction tree, the optimized interception method of united code rate preferentially cuts out and transmits the important bit flat data of telemetry image. Through the system testing, the results demonstrate that compared with the traditional encoding method of rocket telemetry image, the new encoding method has the advantage of low frame-drop-ratio, good quality of reconstructed image, and efficient encoding, etc, which can meet the engineering requirements of the disposal and transmission of rocket telemetry image.