Retinex is a method used for image processing. Image processing has a great role in Medical science. Medical images such as MRI, CT, Ultrasound, X-Ray has to be processed for proper diagnosis. Retinex technique can be used for the processing of these images. By retinex processing it can provide better dynamic range compression, color consistency and lightness rendition. The different methods proposed by Retinex algorithm include Light Compensation Algorithm in Color Facial Image, Retinex for bridging the gap between color images and the human observation of scenes, Color Image Contrast Enhancement by Retinex, Color Image Enhancement with Adaptive Filter. Single scale Retinex causes halation due to Gaussian filter and it does not preserve the edges. While the multiscale Retinex has a very high computational cost. So in this project, we propose retinex algorithm based on wavelet transformation which has low computational cost, i.e. it takes a lesser amount of time and higher efficiency. The input image is processed by wavelet transform. Here the Gaussian filter and retinex is applied only to the half the resolution of the image. Thus the computational cost is reduced as the number of pixels for processing is reduced and the gaussian surround space can be small. Histogram equalization is applied to improve the visual effect. Moreover, we gain higher entropy by using clipping and gain/offset operation. At last, we compare the proposed output with that of the standard MSR output. The experimental results show that proposed method provides satisfactory image enhancement without halation.