JPEG 2000 is a more advanced implementation of the JPEG file format and image compression standard that allows computer users to dramatically reduce the file size of their images without a noticeable loss in quality. Unlike standard JPEG, JPEG 2000 supports transparency in layered images and retains saved selections.
The latest (4.1) version of Apple Preview includes native support for JPEG 2000, while both Adobe Photoshop Elements 6 and Photoshop CS3 allow users to save documents as either standard (JP2) or extended (JPF) JPEG 2000. However, for reasons presumably known only to Adobe, neither Photoshop Elements nor CS3 install the required JPEG 2000 plug-in when you install the application. To enable JPEG 2000 support in either version of Photoshop, you need to manually copy the plug-in from the Photoshop installer CD (Goodies->Optional Plug-Ins->File Formats->JPEG2000.plugin).
In Photoshop Elements and CS3, there is an undocumented feature that allows you to tweak the JPEG 2000 settings when you save the file. To view and adjust those optional settings, choose Save As JPEG 2000, then manually change the default file extension from .jpf to .jp2.
If you create your JPEG 2000 files using Preview and want to share them with a Photoshop user, you need to save the documents with the image quality slider set to Lossless (to the far right).
Otherwise, Photoshop will not recognize the file and will display it as a grey blob.