Now a day a serious business and other types of transaction are being conducted over the Internet. Some secret information is send from one place to other via Internet .We required some kind of security for our data so that intruder cannot capture the data and miss use. Using this proposed method we hide the data and send to receiver using encrypted image .Using this method we provide more security to our data instead of just hiding the data, first encrypt it and then hide. One more advantage of this method is if we compress the image because of limited channel resources by channel provider it will not affect our hide data .With encrypted image also we can transfer the important image . So two way use this method to send the data and to send the image both in secure manner. In the first phase, a sender encrypts the original uncompressed image using an encryption key. Then, a data-hider encrypts the data and may compress the least significant bits of the encrypted image using a data-hiding key to create a sparse space to accommodate some additional data. With an encrypted image containing additional data, if a receiver has the data-hiding key, he can extract the additional data though he does not know the image content. If the receiver has the encryption key, he can decrypt the received data to obtain an image similar to the original one, but cannot extract the additional data. If the receiver has both the data-hiding key and the encryption key, he can extract the additional data and recover the original content without any error .The limitation of this method is that additional data is not too large. Still with these limitations in recent years, signal processing in the encrypted domain has attracted considerable research interest.