We introduce a new image texture segmentation algorithm, HMTseg based on wavelet-domain hidden Markov tree (HMT) models. The HMT model is a tree-structured probabilistic graph that captures the statistical properties of wavelet coefficients. Since the HMT is particularly well suited to images containing singularities (edges and ridges), it provides provides a good classifier for textures. Utilizing the inherent tree structure of the wavelet HMT and its fast training and likelihood computation algorithms, we perform multiscale texture classification at various scales. We then fuse these multiscale classifications using a Bayesian probabilistic graph to obtain a reliable final segmentation. Since HMTseg works on the wavelet transform of the image, it can directly segment wavelet-compressed images, without the need for decompression. We demonstrate the performance of HMTseg with synthetic, aerial photo, and document image segmentations.