This paper proposes a secure image authentication scheme that can locate the tampered regions, recover the lost contents and hide application-specific sensitive data. In this scheme, an encrypted watermark that comprises tamper localization, recovery and application-specific information is placed in the selected pixels, which is extracted and decrypted to identify the tampered regions, recover the tampered regions approximate to original image contents and extract the hidden data. The watermark is highly secure and sensitive to any modification in the image. The proposed scheme ensures lossless recovery of the original image and data from an untampered image. The experimental results show that this scheme generates watermarked image of high quality and has high resistance to copy-move, image splicing, vector quantization and collage attacks. As compared with state-of-the-art schemes, the proposed scheme provides better recovered image quality under extensive tampering.