To solve the problem of image deformation on the small AMOLED display, which caused by loss of gray level, a gray level compensation algorithm is proposed. First of all, test data of gray level display is acquired at different luminance. According to the test data, the mapping between brightness change and loss of gray level is established. Finally, using a nonlinear gray level compression method to process an input image, image distortion for loss of gray level is compensated. The software simulation and hardware test result show that the algorithm can effectively compensate abnormal display gray level because of AMOLED display brightness variation, and make it normal display. Therefore, the algorithm is enabling the small AMOLED display to display gray level properly at different brightness.