Abstract: In order to achieve better performance, a reversible data hiding scheme for encrypted image was proposed based on image block grouping. Using this scheme, the original image of the content owner was encrypted by exploiting a stream cipher. When obtaining an encrypted image by the content owner, the encrypted image was divided into non-overlapping blocks by the data-hider, and the image blocks were grouped by the data hiding key. Subsequently, additional data was embedded into the encrypted image by modifying one of the image blocks in each group. With an encrypted image containing additional data, the receiver can readily gain decrypted version similar to the original image using the encryption key. Meanwhile, with the aid of spatial correlation in natural image, he or she can perfectly recover the original image and correctly extract additional data by comparing the smoothness of image blocks in each group. Experimented result shows that the proposed scheme can acquire a higher payload with good image quality. Furthermore, this scheme is suitable for practical application due to its simple operation and easy realization.