We present a novel joint nonuniform illumination estimation and deblurring method for bar code signals based on a penalized nonlinear squares objective function. The objective function is based on the proper parameterization of a bar code signal and nonuniform illumination as well as a regularization on the illumination using a smoothness penalty. By the minimization of the objective function, the proposed method simultaneously estimates the bar code signal and illumination in the spatial domain. In simulations and experiments, the proposed method showed improved performance compared with two conventional bar code decoding methods without deblurring or nonuniform illumination correction. In a few iterations, the proposed method was able to decode test bar code signals that were not decodable due to blurring or nonuniform illumination.