Most transformations used for digital watermarking in transformation domain are orthogonal transformations, such as DCT and DWT. Three types of orthogonal transformation with excellent performance are found by studying three systems of orthogonal functions: Haar function system, Haar type function system and Walsh function system. Her transformation is one of the three transformations. Her function system can not be used directly in digital watermarking as DCT matrix being used, since Her matrix of Her function system is not normalized orthogonal matrix. The corresponding discrete matrix is obtained by sampling Her continuous functions, and successfully used in digital watermarking with a series of experiments and theoretical analysis. A digital watermarking algorithm based on Her transformation is proposed. Experimental results show that the algorithm is simple and good at perceptual transparency as well as robustness of watermarking extraction. In addition, the experimental results of comparing with the traditional DCT watermarking show that this algorithm is of good robustness against noise and filtering.