A method of compensating for a defective inkjet in an inkjet printer has been developed. A controller identifies pixels in binary image data corresponding to the defective inkjet. The controller identifies alternative pixel locations for non-defective inkjets to print ink drops proximate to the locations of the defective pixels. When an overlap parameter value identified between ink drops in alternative pixel locations and other ink drops around the alternative pixel locations exceeds a predetermined value, the controller changes the alternative pixel location for at least one ink drop to reduce overlap and improve image quality.