In view of the faults of conventional image fusion methods, a novel remote sensing image fusion algorithm with high spatial quality based on IHS transform and the decimated wavelet transform is proposed. The merged high frequency coefficients come from the high frequency coefficients of the histogram matched panchromatic image with the proposed fusion method, while the fused low frequency coefficients are obtained according to the fusion rule suggested in this paper. The merged image is acquired with the inverse wavelet transform and the inverse IHS transform. Experimental results show that the proposed algorithm provides a better tradeoff between improving spatial resolution and preserving spectral quality. The computational complexity of the proposed method is close to that of the conventional fusion approach based on decimated wavelet transform and much lower than that of the fusion method based on undecimated wavelet transform.