In this paper, we propose a reversible data hiding method in encrypted images (RDHEI) using prediction-error encoding (PE-RDHEI). It uses a weighted checkerboard based prediction to predict 3/4 of the pixels in an original image. The obtained prediction-error values and the unmodified pixels are encrypted separately. The data hider then embed secret data into the encrypted prediction-error values using the prediction-error encoding method. At the receiver side, the secret data and original image can be completely extracted and recovered. Compared with existing RDHEI methods, PERDHEI significantly improves the embedding rate. Experimental results are provided to show the excellent performance of our proposed algorithm