In the modern world, digital images play a vital role in a number of applications such as medical field, aerospace and satellite imaging, underwater imaging, etc. These applications use and produce a large number of digital images. Also, these images need to be stored and transmitted for various purposes. Thus, to overcome this problem of storage while transmitting these images, a process is used, namely, compression. The paper focuses on a compression technique known as Block Truncation Coding (BTC) as it helps in reducing the size of the image so that it takes less space in memory and easy to transmit. Thus, BTC is used to compress grayscale images. After compression, Discrete Wavelet Transform (DWT) with spline interpolation is applied to reconstruct the images. The process is suggested in order to view the changed pixels of images after compression of two images. The wavelets and interpolations provide enhanced compressed images that follow the steps for its encoding and decoding processes. The performance of the proposed method is measured by calculating the PSNR values and on comparing the proposed technique with the existing ones, it has been discovered that the proposed method outperforms the most common existing techniques and provides 49% better results in comparison with existing techniques.