Abstract: Adjacent pixels of an image have very similar values. The APD (Adjacent Pixel Difference) algorithm embeds data using the difference sequence of adjacent pixels. In this study, we proposed an improved reversible data hiding algorithm that applies pixel value prediction algorithm based on similarity of adjacent pixel values and data compression algorithm to APD technique. By using the proposed algorithm in this study, more data can be embedded in cover image at various levels. The superiority of the proposed algorithm is verified by experiments.