To avoid the drawback of histogram shifting algorithm, which has lower embedding capacity and is not suitable for color images, a reversible information hiding algorithm for color images based on prediction error difference histogram shifting was proposed. In addition to the difference between random two components, the algorithm also added the third component to calculate difference value, according to the relationship between prediction errors, the difference was divided into five kinds, so as to effectively reduce the difference value to improve the embedding capacity and stego-image quality. The embedding scheme expanded pixels value to embed information, and utilized the expandability of pixels value to locate pixels which can not be expanded, and embed a few flag information instead of overflow location map, with two steps embedding method, avoid using worst test method to determine expandability of pixels value, therefore the quantity of auxiliary information was decreased. Experimental results showed the embedding capacity and the quality of stego-image are significantly improved, when compared with other new or classical reversible embedding algorithms.