Within the bit stream of an embedded digital code is a stream that can be decoded to produce a reasonable replica of the analog source signal. Unlike pulse code modulation (PCM), differential PCM (DPCM), is not an embedded code. If C bits/sample are delected from the bit stream of a DPCM encoder with E bits/sample, the decoded analog signal is substantially noisier than the output of a DPCM codec with D = E - C bits/sample. The penalty is 4-10 dB in signal-to-noise ratio (snr). However, with minor modifications to the encoder and decoder, DPCM becomes an embedded code. Embedded DPCM with E bits/ sample at the encoder and D bits/sample transmitted produces exactly the same output as embedded DPCM with D bits/sample encoding and perfect transmission. The snr of embedded DPCM is slightly lower than the Snr of DPCM. The penalty is 0.5-0.8 dB if the minimum transmitted bit rate is 2 bits/sample. It is less than 0.3 dB if D is at least 3 bits/sample. Combined with an appropriate adaptive quantizer the embedded DPCM codec produces embedded ADPCM (adaptive DPCM) for variable rate transmission ranging from 2 bits/sample up to any desired maximum. Applications exist in speech interpolation, packet switching, and hardware architecture.