A system and method for adaptively controlling the encoded data rate in a data compression system. The system and method sets up alternative encoded bit streams for each segment of data and selects the alternative that would produce the bit rate closest to a predetermined target bit rate for transmission. Each segment of video input is quantized based on a set quantization settings to produce a plurality of quantized segments. Each quantized segment is then variable rate encoded to produce an alternative encoded bit stream. The data rate that would be required to transmit each alternative encoded bit stream is determined and compared with a predetermined target bit rate, which is set according to the transmission rate buffer status. The selected encoded bit stream is provided to the transmission rate buffer in preparation for transmission. Having processed one segment of data, the system and method then updates its parameters for processing the next segment of data. An updated target bit rate is determined based on the rate buffer status at this point. A rate versus quantization index model is derived according to the data rates of the encoded streams and the corresponding quantization indices. A new set of weighting mask functions is then produced in accordance with the model and the quantization indices. The new set of quantization indices is to be used for processing the next segment of data.