A method for encoding and decoding color barcodes to increase their data capacity. The encoding steps include determining a shape, a foreground color and a background color for each data cell, wherein a combination of the shape, foreground and background colors for the data cell is chosen from a plurality of such combinations in accordance with a value of the digital data to be encoded; and coloring some pixels in the data cell with a foreground color and other pixels with a background color, in accordance with the shape, foreground and background colors for the data cell determined above. The decoding steps include segmenting the data cells, recognizing a shape, a foreground color of the shape and a background color of the data cell, and obtaining digital data from a combination of the shape and foreground and background colors in each data cell.