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In many wireless sensor network applications, the possibility of exceptions occurring is relatively small, so in a normal situation, data obtained at sequential time points by the same node are time correlated, while, spatial correlation may exist in data obtained at the same time by adjacent nodes. A great deal of node energy will be wasted if data which include time and space correlation is transmitted. Therefore, this paper proposes a data compression algorithm for wireless sensor networks based on optimal order estimation and distributed coding. Sinks can obtain correlation parameters based on optimal order estimation by exploring time and space redundancy included in data which is obtained by sensors. Then the sink restores all data based on time and space correlation parameters and only a little necessary data needs to be transmitted by nodes. Because of the decrease of redundancy, the average energy cost per node will be reduced and the life of the wireless sensor network will obviously be extended as a result.