This thesis studies the application of the wavelet filter bank (WFB) in perceptual audio coding by providing brief overviews of perceptual coding, psychoacoustics, wavelet theory, and existing wavelet coding algorithms. Furthermore, it describes the poor frequency localization property of the WFB and explores one filter design method, in particular, for improving channel separation between the wavelet bands. A wavelet audio coder has also been developed by the author to test the new filters. Preliminary tests indicate that the new filters provide some improvement over other wavelet filters when coding audio signals that are stationary-like and contain only a few harmonic components, and similar results for other types of audio signals that contain many spectral and temporal components. It has been found that the WFB provides a flexible decomposition scheme through the choice of the tree structure and basis filter, but at the cost of poor localization properties. This flexibility can be a benefit in the context of audio coding but the poor localization properties represent a drawback. Determining ways to fully utilize this flexibility, while minimizing the effects of poor time-frequency localization, is an area that is still very much open for research.