We demonstrate a novel imaging technique, named short-lag spatial coherence (SLSC) imaging, which uses short distance (or lag) values of the coherence function of backscattered ultrasound to create images. Simulations using Field II are used to demonstrate the detection of lesions of varying sizes and contrasts with and without acoustical clutter in the backscattered data. B-mode and SLSC imaging are shown to be nearly equivalent in lesion detection, based on the contrast-to-noise ratio (CNR) of the lesion, in noise-free conditions. The CNR of the SLSC image, however, can be adjusted to achieve an optimal value at the expense of image smoothness and resolution. In the presence of acoustic clutter, SLSC imaging yields significantly higher CNR than B-mode imaging and maintains higher image quality than B-mode with increasing noise. Compression of SLSC images is shown to be required under high-noise conditions but is unnecessary under no- and low-noise conditions. SLSC imaging is applied to in vivo imaging of the carotid sheath and demonstrates significant gains in CNR as well as visualization of arterioles in the carotid sheath. SLSC imaging has a potential application to clutter rejection in ultrasonic imaging.