The extraction of rotation invariant representation is important for many signal processing problems such as image analysis, computer vision, and pattern recognition. In this paper, we present a systematic analysis of the Two-Dimensional Fractional Fourier Transform (2D-FRFT), and show that under certain conditions, the 2D-FRFT technique possesses the attractive property of rotation invariance. Based on our analysis, we proposed a novel digital image watermarking method which combines 2D chirp signal with the addition and rotation invariant properties of 2D-FRFT to achieve improved robustness and security. The effectiveness of the proposed solution is demonstrated through experiments.