Data hacking is very difficult to deal with today's electronic world. There are large numbers of technique used, for the secure communication of data. Images are widely used in different-different processes. So data hiding is used in the encrypted image, but the main problem is that distortion at the time of data extraction. Reversible data hiding in encrypted image is used to solve this problem. SDS Algorithm gives more security to secret data. RDH recovers the original image after the extraction of the embedded data. In this paper, XOR ciphering technique used for encryption and decryption process. All existing mechanisms embed data by reversibly vacating room after the encrypted images. However, this may result in some errors on data extraction and/or image restoration. In this paper, we suggest a method by holding a space before encryption with a RDH algorithm. Thus, the data hider can embed data in the encrypted image. The embedded data can be data or image. Both data extraction and image recovery will be formed without any error. The transmission and exchange of image also demands high security. Cryptography is used to maintain security