In this paper, we propose a new reversible watermarking algorithm based on additive prediction-error expansion which can recover original image after extracting the hidden data. Embedding capacity of such algorithms depend on the prediction accuracy of the predictor. We observed that the performance of a predictor based on full context prediction is preciser as compared to that of partial context prediction. In view of this observation, we propose an efficient adaptive prediction (EAP) method based on full context, that exploits local characteristics of neighboring pixels much effectively than other prediction methods reported in literature. Experimental results demonstrate that the proposed algorithm has a better embedding capacity and also gives better Peak Signal to Noise Ratio (PSNR) as compared to state-of-the-art reversible watermarking schemes. © 2013 IEEE.