Abstract: A novel coding technique called Variable-Tail is presented in the paper, utilized to compress test data. Two optimization models are constructed to achieve the improvement of test data compression and test power reduction. A co-optimization algorithm which combines test vectors reordering and dynamic X-bit assignment procedure is brought to solve two optimization models. The theoretical analysis and experimental results of ISCAS85, ISCAS89 circuits verify the efficiency of the Variable-Tail code and the co-optimization algorithm.