This article studies the distributed set-membership filter design problem for a class of general nonlinear discrete time-varying systems whose measurements are collected by a multitude of distributed sensors. A scheme is exploited to estimate the state by using the measurements from not only the local sensors but also the neighboring ones, whose information is propagated by codewords through the communication network on basis of the fixed topology. A dynamic coding–decoding technique is applied during the data transmission process among sensing nodes. The purpose of the investigation is to limit the estimation error into a predetermined allowed region characterized by an ellipsoid, in spite of the existence of the so-called unknown-but-bounded (UBB) disturbances. Sufficient conditions are established for the existence of required filter, and the filtering gains can be determined by virtue of solving certain set of matrix inequalities. A suboptimal problem is discussed to guarantee the locally optimal filtering performance. Finally, the provided theoretical framework is demonstrated by an illustrative numerical example.