A new fusion method based on Intensity-Hue-Saturation (IHS) transform and multistage bilateral filtering for multispectral (MS) and panchromatic (PAN) images is presented. The missing high frequency information of MS image is obtained by the decomposition of PAN image using bilateral pyramid. The fused image is obtained by the summation of these detail layers weighted by intensity component to the multispectral image. The proposed method is compared with the widely used IHS, Additive Wavelet Luminance Proportional (AWLP) and A Trous Wavelet Based Context Based Decision (ATWT-CBD) fusion methods. The resulting images as well as evaluation metrics demonstrate that the proposed algorithm has better performance.