In this world where media owners are desperately trying to protect their images from being manipulated & illegally used, it is often desired to obtain a robust digital watermarking method that does not distort the digital image, even if this implies that the image is slightly expanded in size before final compression. The aim of this work was to develop a new algorithm to embed a watermark in JPEG compressed images, using encoding methods. This encompasses the embedding of proprietary information, such as identity and authentication bitstrings, into the compressed material. This watermark encoding scheme involves combining entropy coding with homophonic coding, in order to embed a watermark in a JPEG image.