H.264/AVC fractional motion estimation (FME) engine for HDTV 1080p is proposed in this paper. In order to provide real-time processing capability with reasonable hardware cost, several techniques have been presented. Firstly, the H.264/AVC is optimized and only 1 reference frame and block modes above 8 × 8 are supported. Therefore, the computation is reduced to 11.4% and the PSNR loss is only 0.1dB. Secondly, the lossless inside-mode and cross-mode reusing techniques are adopted, which can reduce about 65% pixel generation and SATD calculation. Thirdly, the lossless optimized FME scheduling is used to remove the pipeline bubbles between adjacent 1/2-pel and 1/4-pel FME. The proposed FME engine is realized with TSMC 0.18μm 1P6M CMOS technology and costs 203.2K gates and 52.8KB SRAM. Under 200MHz frequency, the proposed FME engine can real-time encode HDTV 1080p at 30fps with 236mW power cost.