In this paper, we propose a novel pixel-level multisensor image fusion algorithm with simultaneous contrast enhancement. In order to accomplish both image fusion and contrast enhancement simultaneously, we suggest a modified framework of the subband-decomposed multiscale retinex (SDMSR), our previous contrast enhancement algorithm. This framework is based on a fusion strategy that reflects the multiscale characteristics of the SDMSR well. We first apply two complementary intensity transfer functions to source images in order to effectively utilize hidden information in both shadows and highlights in the fusion process. We then decompose retinex outputs into nearly nonoverlapping spectral subbands. The decomposed retinex outputs are then fused subband-by-subband, by using global weighting as well as local weighting to overcome the limitations of the pixel-based fusion approach. After the fusion process, we apply a space-varying subband gain to each fused SD retinex output according to the subband characteristic so that the contrast of the fused image can be effectively enhanced. In addition, in order to effectively manage artifacts and noise, we make the degree of enhancement of fused details adjustable by improving a detail adjustment function. From experiments with various multisensor image pairs, the results clearly demonstrate that even if source images have poor contrast, the proposed algorithm makes it possible to generate a fused image with highly enhanced contrast while preserving visually salient information contained in the source images.