This paper presents a new homomorphic image cryptosystem. The idea of this system is based on encrypting the reflectance component after the homomorphic transform and embedding the illumination component as a least significant bit watermark into the encrypted reflectance component. A comparison study is held between the RC6 block cipher algorithm and the chaotic Baker map algorithm for the encryption of the reflectance component. We present a security analysis for the proposed cryptosystem against the entropy, brute-force, statistical, and differential attacks from a strict cryptographic viewpoint. Experimental results verify and prove that the proposed homomorphic image cryptosystem is highly secure from the cryptographic viewpoint. The results also prove that this cryptosystem has a very powerful diffusion mechanism (a small change in the plain text makes a great change in the cipher image). The homomorphic encryption using RC6 algorithm is more secure than that using the chaotic Baker map algorithm but not robust to noise. Thus, the proposed homomorphic cryptosystem can be used in different applications, depending on the core algorithm used.