In the paper, we bring forward an image encryption algorithm during the process of JPEG compression. According to the chaotic theory of dynamic systems and modern cryptography, we solved the following technique First, how to generate chaotic sequence having good randomness accordng to the characteristic that Logistic chaotic systems are extremely sensitive to the initial condition? Secondly, how to create a series of one-way hash being as block key from the chaotic sequences? Thirdly, during the process of JPEG compression coding, how to implement the image compression cipher? In the analysis of the algorithm, we discuss the randomness of the chaotic sequence in detail. We also analyze the security and anti-collission of the chaotic hash sequence by several variant methods. The resultls indicate that our algorithm completely satisfied the security requirement in the sense of cryptography.