Abstract: We present a novel texture compression system for improved image quality. Building on the iPACKMAN/ETC method, bit combinations that are invalid in that system are used to allow for three additional decompression modes without increasing the bit rate. These modes increase quality, especially for color edges and blocks with smoothly varying content. Due to the use of invalid bit combinations, the system, called ETC2, is backwards compatible with iPACKMAN/ETC. It outperforms S3TC/DXTC and iPACKMAN/ETC in terms of PSNR with 0.8 dB and 1.0 dB respectively, which is clearly visible to the human eye.