Abstract: With the emergence of high dynamic range (HDR) images and videos, improving the liquid crystal display (LCD) technology has become an urgent requirement. The development of HDR display systems is becoming the focus of research in the display technology. To improve the dynamic range of LCDs to the best possible extent, a local dimming algorithm based on dynamicthreshold backlight luminance extraction and two-step liquid crystal pixel compensation was proposed to improve the dynamic range of a backlight model and an LCD panel, thereby enhancing the contrast and visual quality of the dimmed image. The experimental results demonstrate that the proposed algorithm can improve the image contrast ratio by approximately 113.60% on average. Additionally, on the direct white light-emitting diode backlight LCD, specific images were used to verify the accuracy of the proposed algorithm. The display effects indicate that the layering and color of dimmed images are enhanced and the image contrast ratio is improved. Based on these results, it can be concluded that the proposed algorithm can effectively improve both the contrast of LCDs and the display quality.