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Steganography is the art of hiding the existence of data in another transmission medium to achieve secret communication. The steganography is used for secure communication. In this paper we propose a Discrete Wavelet Transform (DWT) based high capacity steganography using coefficient replacement with increased security by adapting an encryption of payload Image. The Haar and biorthogonal DWT is applied separately on cover image and Advanced Encryption Standard (AES) with modification is applied on payload to convert payload image into an encrypted image. The resulted coefficients of payload image are embedded inside the high frequency bands of cover image. The new concept of replacing HH sub band coefficients by encrypted payload is introduced to generate intermediate stego image. It is observed that the capacity and security are increased in the proposed algorithm compared to existing algorithms. The algorithm is finally tested on ARM8 processor.