In the modern era of health care and medical diagnostics, medical image contents are needed to be transported through the internet, in a safe and secured way, within time. Image compression is a process of reducing the size of an image without affecting the quality. Image compression reduces the size and helps in quick transportation. Digital watermarking is a process of embedding some secret data in an image for copyright protection, authentication, and channel reliability detection, done without affecting its look. In this work, vector quantization based compression technique is used. It follows LBG clustering algorithm. For watermarking, DCT-DWT based embedding and extraction technique is adopted. At first, retina image was compressed and BPP, S NR, MS E, PS NR values were compared, before and after compression. Later, a binary EPR logo image was embedded into compressed and uncompressed images. Correlation values of original watermark and extracted watermark images were computed and compared for further study.