Bit allocation and rate control form an important part of the strategies used for encoding video. Video coding standards such as the CCITT H.261 and the ISO 11172  allow substantial freedom in the exact methodology used to allocate bits to different parameters and control the output bit rate. Thus, different standard conforming coders can give different picture quality depending on the bit allocation and rate control strategy used at the encoder. In this paper, we propose a new bit allocation and rate control strategy that is based on some assumptions about the sensitivity of the human visual system to distortion. We use the ISO 11172 standard in our examples, although the strategy is equally applicable to other DCT based interframe coding schemes. The new scheme shows considerable quality improvement over conventional schemes in informal subjective tests.