A method and system implements a dynamic error diffusion process. A grey level value representing a pixel is received. An image segmentation circuit determines an image characteristic of the pixel being processed. A threshold circuit thresholds the grey level value (pixel) and generates an error value as a result of the threshold process. A portion of the error value is diffused to adjacent pixels on a next scanline. The distribution of this error value is dynamic in that different sets of weighting coefficients are used based the image characteristic of the processed pixel. One set of coefficients are utilized in processing a pixel having a first image characteristic, and a second set of coefficients are utilized in processing a pixel having a second image characteristic.