Accurate masking of cloud and cloud shadow is a prerequisite for reliable mapping of land surface attributes. Cloud contamination is particularly a problem for land cover change analysis, because unflagged clouds may be mapped as false changes, and the level of such false changes can be comparable to or many times more than that of actual changes, even for images with small percentages of cloud cover. Here we develop an algorithm for automatically flagging clouds and their shadows in Landsat images. This algorithm uses clear view forest pixels as a reference to define cloud boundaries for separating cloud from clear view surfaces in a spectral-temperature space. Shadow locations are predicted according to cloud height estimates and sun illumination geometry, and actual shadow pixels are identified by searching the darkest pixels surrounding the predicted shadow locations. This algorithm produced omission errors of around 1% for the cloud class, although the errors were higher for an image that had very low cloud cover and one acquired in a semiarid environment. While higher values were reported for other error measures, most of the errors were found around the edges of detected clouds and shadows, and many were due to difficulties in flagging thin clouds and the shadow cast by them, both by the developed algorithm and by the image analyst in deriving the reference data. We concluded that this algorithm is especially suitable for forest change analysis, because the commission and omission errors of the derived masks are not likely to significantly bias change analysis results.