To solve the problems of low color saturation and edge blurring caused by viscous resistance and other factors in color EPD, this paper proposes a color e-paper edge enhancement error diffusion algorithm based on HSL space to improve the display quality. This algorithm first uses an edge detection operator to obtain edge-enhanced images from denoised images. It combines edge-enhanced image pixel neighborhood average gray level, pixel and neighborhood gray level difference, and pixel neighborhood similarity to obtain new RGB image pixel value. Then, the new RGB image is processed by a threshold process to obtain a 16-level RGB image. Finally, the 16-level RGB image is converted to HSL space, and a conversion model between HSL and RGB color spaces is established. According to the brightness and saturation of the pixel, the adjustment factor is calculated to enhance the saturation of the RGB image. Compared with the traditional error diffusion algorithm, the signal-to-noise ratio PSNR of this algorithm is improved by 3.9%~26.7%, the UCIQE is improved by 10.1%~48.2%, and the SSIM is improved by 13.2%~25.4%. The subjective evaluation refers to the ITU-R BT.500-1 standard to design experiments and calculate Z scores. Finally, the image details and colors of the image processed by this paper algorithm are closer to the original image on the color e-paper, and the overall visual effect is better.