We propose a new optical watermarking method, which can protect the copyright of digital data, using a binary phase hologram and a Mach-Zehnder interferometer. Using a simulated annealing algorithm, the binary phase hologram of the mark image to be hidden is designed. We obtained a watermarked image by linearly superposing the hologram, which is the watermark, in the original image. The extraction processing of the mark image from the watermarked image is achieved by placing the phase-modulated watermarked image on a LCD in one path and the phase-modulated original image on another LCD in the other path in the Mach-Zehnder interferometer. The mark image was obtained by inverse Fourier transforming the phase modulated interference intensity. We confirmed that the proposed method is robust for the cropped images through computer simulation, and we implemented it optically using LCDs which are phase modulation devices.