H.263 was developed by the ITU-T in 1993 as part of the low bit rate video phone standards development. While the low bit rate video phone effort has not been a commercial success, the H.263 development represented a significant improvement in compression efficiency over the earlier H.261 algorithm. It made use of and provided some improvements over MPEG-1 and MPEG-2 techniques and laid the ground work for MPEG-4 and H.264 efforts that followed.

 H.263 was targeted at data rates below 64 Kbps. To achieve this, a new lower resolution Sub-QCIF (SQCIF 128×96) was defined. But it also defined some higher resolution modes: 4CIF (704×576) and 16CIF (1488×1152). The other major improvements were the half pixel motion estimation, unrestricted motion vectors, syntax based arithmetic coding, advanced prediction, and forward/backward frame prediction called P-B Frames.