An edge-preserving diffusion filter maintains the sharp edges in images while smoothing out image noise. An edge-preserving diffusion filter applies an edge-preserving smoothing filter to an image to form a filtered image. The modified image is then blurred by a blurring filter to form a blurred image. The modified image and the blurred image are blended together to form an output image based on an error metric associated with each pixel. The edge-preserving diffusion filter may be utilized to perform a multilevel decomposition of the image. The edge-preserving diffusion filter may be applied to an unfiltered image to produce a base image. The difference between the unfiltered image and the base image defines a detail image. The detail image may be used as the input for recursively generating additional levels of detail. The multilevel decomposition may utilize filter kernels associated with different contrast levels for each iteration.