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We are happy to present to you the proceedings of the 3rd International Workshop on Digital Watermarking, IWDW 2004. Since its modern reappearance in the academic community in the early 1990s, great progress has been made in understanding both the capabilities and the weaknesses of digital watermarking. On the theoretical side, we all are now well aware of the fact that digital watermarking is best viewed as a form of communication using side information. In the case of digital watermarking the side information in question is the document to be watermarked. This insight has led to a better understanding of the limits of the capacity and robustness of digital watermarking algorithms. It has also led to new and improved watermarking algorithms, both in terms of capacity and imperceptibility. Similarly, the role of human perception, and models thereof, has been greatly enhanced in the study and design of digital watermarking algorithms and systems. On the practical side, applications of watermarking are not yet abundant. The original euphoria on the role of digital watermarking in copy protection and copyright protection has not resulted in widespread use in practical systems. With hindsight, a number of reasons can be given for this lack of practical applications.