In this paper, reversible data hiding algorithm is proposed for digital images. In addition to that contrast enhancements of images are also performed to improve its visual quality. This technique ensures security and provides mechanism to protect the integrity of the message from any modification by preventing planned and accidental changes. Our method is based on 2D histogram modification to exploit the redundancy in digital images and to produce extra space for embedding to achieve very high embedding capacity. A preprocessing strategy is established to combine the neighboring bins in 2D histogram. By histogram equalization, overflow and underflow of the pixel values can be prevented. The lowest bins are used for reducing the changes made and the highest bins are effectively used for data embedding. By embedding in highest bins, contrast enhanced image can be achieved. The experimental results clearly establish that in comparison with the other reversible data hiding algorithm, the proposed algorithm achieves better performance in terms of contrast enhancement there by preserving image quality. The proposed technique achieves satisfactory and stable performance both on embedding capacity and visual quality.