This paper proposes a novel contrast enhancement (CE) algorithm for color images using the modified error diffusion (ED). After conventional color histogram equalization (HE), artifacts such as false contours are produced in the contrast enhanced image. The proposed CE algorithm using the modified ED consists of two parts: CE and ED. In the first part, a low-contrast input image is enhanced by the conventional HE method. In the second part, we use the modified ED algorithm. The inputs of the second part are the average and scaled difference images of the original color input image and the HE image, in which the scaled color difference image is diffused by the ED algorithm. In the proposed algorithm, the modified ED algorithm reduces the artifacts produced in the HE image, and increases the number of color levels. Computer simulations with a number of low-contrast color images show the effectiveness of the proposed CE method in terms of the visual quality as well as the probability mass function. It can be used as a post-processing for CE with simultaneous artifact reduction in various display devices.