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Region-of-interest (ROI) can be applied in H.264 video encoder to enhance subjective quality and reduce computation complexity. For the aiming application of low cost hardware real-time encoder in videophone with faces as ROI, this paper proposes a face detection algorithm to detect each macroblock (MB) as one part of a face or not. This face detection algorithm has a unique estimation-and-verification process and can be combined with a H.264 encoder by MB level pipeline architecture. 97.91% MBs in faces can be detected. VLSI architecture of proposed face detection algorithm is designed and an area of 4.3 k gates is achieved. Power consumption is only 1.45 mW at 100 MHz. A ROI based H.264 encoder with dynamic parameters is proposed to enhance subjective quality and reduce the rate-distortion-optimization (RDO) complexity. The PSNR in ROI increases for 4.8 dB under similar bit rate. Encoding time is reduced to 54.4% in videophone-like sequences.