A technique of color image subtraction with encoded extended incoherent sources is presented. The objective of the source encoding is to obtain a reduced coherence requirement for the image subtraction so that the inherent difficulty of obtaining an incoherent point source can be alleviated. Experimental results for the color image subtraction obtained with the incoherent processing technique are given. Since most images are multi-colored, this color image subtraction technique may offer a broad range of applications.