For the researches on remote sensing image fusion of low-resolution multispectral image and high-resolution panchromatic image, traditional intensity-hue-saturation (IHS) transform faces a problem of color distortion while the traditional wavelet transform has a problem of blurring. To enhance the spatial resolution of fusion image as well as preserve spectral information of the original multispectral image, a novel efficient algorithm based on IHS and wavelet transform is presented. Firstly the intensity component of multispectral image is extracted. The intensity component is analyzed using principal component analysis (PCA) and the revised intensity component is merged with the panchromatic image based on wavelet transform. The fusion image is obtained via inverse IHS transform. Experiments prove that the proposed method quantitatively outperforms the traditional ones, in terms of geometric, radiometric, and spectral fidelity.