As the healthcare community has begun to rely increasingly upon digital technologies for acquisition, storage, and transmission of pictorial data, image compression has become an indispensable tool. We have investigated the feasibility of lossy compression in a well-defined task domain, the clinical assessment of digitized images of chromatic microscopic pathology specimens. The effect of compression was measured under two distinct perceptual criteria, just noticeable difference (j.n.d.) and largest tolerable distortion (l.t.d.), differing in the involvement required from subjects, who were experts in pathology. For standard JPEG compressed images it was found that when the experiment is performed under the l.t.d. criterion, a significantly larger compression ratio is reported as satisfactory. It is concluded that lossy compression holds promise for diagnostic telepathology.