In this paper a modified transcendental equation is proposed, and we analyzed its chaotic characteristics and periodic. It is a simple non-linear mode, l but it has complex dynam ics.Then it was used in gray image encryption. This is a digital image encryption algorithm, dual scrambling that based on chaos of pixel position and pixel value.Compared with the traditional transcendental equation, the improved transcendental equation has only chaos characteristic, when the number of iterations is less than 5, the equation has periodicity,and when iterative times are more than 20, the equation has chaotic characteristic only, so the modified transcendental equation has larger key space.Performance test and security analysis are performed using key space analysis, the pixels distribution character, correlation coefficients, the ability to resist attack and key sensitivity test. Results suggest that the proposed image encryption scheme is secure and efficient, with high potential to be adopted for the secure image communication applications. ©2013 ACADEMY PUBLISHER.