We demonstrate a fully phase encryption system that uses digital holography. The input amplitude image to be encrypted is phase encoded, and either its Fourier or Fresnel transform is obtained. Using interference with a wave from a random phase mask, a Fourier or Fresnel hologram (encrypted data) is recorded digitally. The decryption key is also recorded as a digital hologram, called the key hologram. An electronic key is generated and multiplied with the encrypted hologram. A Fourier transform (encrypted image) is then obtained. The decryption key hologram, the electronic key, and the encrypted image can be transmitted through communication channels. The retrieval is carried out by all-digital means. © 2004 Society of Photo-Optical Instrumentation Engineers.