In this paper a novel steganographic method has been proposed to improve the security of embedded data with high capacity and imperceptible visual quality, the proposed method is based on four-pixel block differencing, modified LSB substitution and Knights tour. Secret data is embedded randomly using knights tour in each 8×8 pixels block of cover image and n-bit modified LSB substitution has been used to improve the quality of stego image, where n is decided by the level to which the average difference value falls into, then it employs readjustment procedure to reduce the perceptual distortion. The proposed method adaptively embeds the secret data into cover image by differentiating the edge and smooth areas, so that more number of secret bits can be embedded without making any perceptual distortion. Results show that our proposed method has provided greater security with high embedding capacity and a better image quality. © 2005 - 2011 JATIT & LLS. All rights reserved.