In recent years, wavelet-based video coding schemes have attracted considerable attention in the image coding community. In this paper, a new algorithm of three-dimensional wavelet transform (3D-WT) for video coding is presented. The main difference between it and the traditional 3D-WT algorithm is temporal decomposition. The proposed algorithm performs the temporal decomposition of a video sequence in a more efficient way, which is on the basis of several groups separated from the original video sequence. The requirements of processing memory for the proposed algorithm is also analyzed and compared with that of the traditional algorithm. Experimental results show that the proposed algorithm exhibits lower memory demands and better performance of video coding than the traditional 3D-WT algorithm.