Smart Grid (SG) is an advanced electrical power grid. SG collects the user’s smart meter data over the public network. After that, based on the data, generate the bills, and predict the electricity demand. The data contains sensitive information about users. Thus, the privacy of the users is required for better assessment. To preserve the privacy of the user, symmetric cryptography algorithms are used. In the symmetric algorithm, the same key is required for encryption/decryption purposes. Thus, the key is communicated to the receiver with the encrypted data. Thus, it is prone to eavesdropping and tampering attacks. Therefore, in this paper, we have designed data and key encapsulation algorithm that secure the data as well as the key. We have used the Advanced Encryption Standard (AES) algorithm for data security and difference expansion algorithm for key security. Further, to reduce the encryption time of data encryption, software optimization algorithms used. Next, the encrypted data bits read, and a difference expansion algorithm is applied on it to hide the key bits in the encrypted data. The advantage of the difference expansion algorithm is that the original encrypted data bits recover with key bits extraction. The experimental results show that the data and key encapsulation takes less execution time, provide better security as compared to the existing algorithm.