A novel digital watermarking method by optical cascaded fractional Fourier transform and random phase encoding is proposed. This method can be served as an effective way of information hiding and protection. Experimental results show that this watermarking method has strong robustness against noise,shearing,rotation,resizing,and medium filtering. This watermarking method is based on optical cascaded fractional Fourier transform system. The watermark information is iterative fractional Fourier transformed and embedded into host image. And two phase distributions can be obtained as keys to protect the watermark information. With the introduction of double phase encoding,the key space of this watermark system is greatly enlarged. As a result the security of this watermark system is enhanced. This watermark technique can be implemented both optically and digitally.