We present a general wavelet-based denoising scheme for functional magnetic resonance imaging (fMRI) data and compare it to Gaussian smoothing, the traditional denoising method used in fMRI analysis. One-dimensional WaveLab thresholding routines were adapted to two-dimensional (2-D) images, and applied to 2-D wavelet coefficients. To test the effect of these methods on the signal-to-noise ratio (SNR), we compared the SNR of 2-D fMRI images before and after denoising, using both Gaussian smoothing and wavelet-based methods. We simulated a fMRI series with a time signal in an active spot, and tested the methods on noisy copies of it. The denoising methods were evaluated in two ways: by the average temporal SNR inside the original activated spot, and by the shape of the spot detected by thresholding the temporal SNR maps. Denoising methods that introduce much smoothness are better suited for low SNRs, but for images of reasonable quality they are not preferable, because they introduce heavy deformations. Wavelet-based denoising methods that introduce less smoothing preserve the sharpness of the images and retain the original shapes of active regions. We also performed statistical parametric mapping on the denoised simulated time series, as well as on a real fMRI data set. False discovery rate control was used to correct for multiple comparisons. The results show that the methods that produce smooth images introduce more false positives. The less smoothing wavelet-based methods, although generating more false negatives, produce a smaller total number of errors than Gaussian smoothing or wavelet-based methods with a large smoothing effect.