We propose a new technique for the optical encryption of gray-level optical images digitized into 8-bits binary data by ASCII encoding followed by QPSK modulation. We made an encrypted digital hologram with a security key by using 2-step phase-shifting digital holography, and the encrypted digital hologram is recorded on a CCD camera with 256 gray-level quantized intensities. With these encrypted digital holograms, the phase values are reconstructed by the same security key and are decrypted into the original gray-level optical image by demodulation and decoding. Simulation results show that the proposed method can be used for cryptosystems and security systems.