||Nowadays, digital images can be distributed easily through the Internet. As a side effect, problems of copyright infringement and authentication grow rapidly. One possible solution is to embed hidden data into these images. A new method called Data Hiding by Stochastic Error Diffusion (DHSED) is invented for such purposes. It relates to data hiding methods and apparatus for use with halftone images, particularly error diffused images. This method allows hiding of image information such as source of the image, company logos and so on, without affecting the quality of the image. The DHSED has two modes: simple and advanced. More important is, the method of revealing the hidden data can be as simple as comparing the original image with the processed image by overlaying one on the other. Halftoning is a method to represent multi-tone images using only two-tone colours, and is widely used in computer printers and publicaitons. However, few, if not none, of the data hiding algorithms can be applied to halftone images.