ABSTRACT More and more downhole devices are requiring two-way communication with the surface to telemeter data and device status and/or receive telemetered instructions which effect the operation or status of the downhole device. This paper examines the application of digital data-encoding techniques to MWD mud pulse telemetry and shows how they can significantly improve data transmission rates over conventional MWD telemetry methodologies. It further represents a study of how established technologies can be reapplied and open up new opportunities to improve communication systems in our industry. The analysis describes MWD telemetry in particular, but it is also applicable to other active downhole devices, such as adjustable bent subs or variable stabilizers. Traditional mud pulse telemetry methodologies along with recent innovations which have focussed on encoding data by using a set of unipolar pulses in combinatorial patterns within a fixed time interval or by employing phase shift keying (PSK) to form different data patterns are reviewed. An examination will follow of digital data encoding techniques used in high density mass storage systems which can be applied to mud pulse telemetry and discussion of their advantages and disadvantages. A recommendation, using the nature, benefit, and limitations observed as design factors, will then be made for selecting an optimal encoding scheme.