A new adaptive algorithm based on wavelet-encoded MRI is presented for application in dynamic imaging. This algorithm is adaptive because the strategy for updating image data in the dynamic series of images is determined by the processing of the most recently acquired data. The spatially selective multi-resolution properties of the wavelet transform are exploited to selectively update only those regions of the field of view where change is actually occurring. A theoretical imaging model is presented to motivate use of the adaptive algorithm, and simulation results using both artificial and experimental wavelet-encoded data are presented.