Recent developments of digital image production and applications have increases importance of digital image compression and security in today’s world. The proposed method is developed to combine both compression and security of image. Compression is achieved by the removal of redundant data. Discrete Wavelet Transform (DWT) is a recently developed compression technique in image compression. The existing methods to encrypt images usually treat the whole matrix as the key which makes the key too large to distribute and memorize or store. To solve this problem, in this proposed method key controlled matrix is constructed using the logistic map and the Arnold transform is used for image location scrambling.