Techniques and tools are described for scalable video encoding and decoding. In some embodiments, an encoding tool encodes base layer video and outputs encoded base layer video in a base layer bit stream. The encoding tool encodes inter-layer residual video (representing differences between input video and reconstructed base layer video) using motion compensation relative to previously reconstructed inter-layer residual video. For the inter-layer residual video, the encoding tool outputs motion information and motion-compensated prediction residuals in an enhancement layer bit stream. A decoding tool receives the base layer bit stream and enhancement layer bit stream, reconstructs base layer video, reconstructs inter-layer residual video, and combines the reconstructed base layer video and reconstructed inter-layer residual video. Using motion compensation for the inter-layer residual video facilitates the use of separate motion vectors and separate codecs for the base layer video and inter-layer residual video.