In general fractal imge compression, each range block is approximated by a contractive transform of the matching domain block under the mean squared error criterion. In this paper, a distortion measure reflecting the properties of human visual system is defined and applied to a fractal image compression. the perceptual distortion measure is obtained by multiplying the mean square error and the noise sensitivity modeled by using the background brightness and spatial masking. In order to compare the performance of the mean squared error and perceptual distortion measure, a simulation is carried out by using the 512*512 Lena and papper gray image. Compared to the results, 6%-10% compression ratio improvements under improvements under the same image quality are achieved in the perceptual distortion measure.