A method and apparatus utilizing a prediction guided decimated search motion estimation algorithm are provided. The prediction guided decimated search motion estimation algorithm generates a motion vector used to encode a macroblock in a frame from a video sequence. The algorithm includes generating full-pixel seed vectors, performing a full-pixel search around the generated seed vectors, which is followed by a fractional pixel search. The full-pixel seed vectors generated are a predicted motion vector and a hierarchical motion vector. A fractional pixel search may be conducted around a final motion vector generated by the full-pixel search and may include a half-pixel search and a quarter-pixel search. The prediction guided decimated search motion estimation algorithm can be implemented in both software and hardware. The algorithm is characterized by improved efficiency, scalability, and decreased complexity.