Security is a million dollar issue for all computer systems. Every week there is news of another major breakin to a commercial or government system. Also it is well known that many governments are actively engaged in cyber-warfare, trying to break into the systems of other governments and other groups. The Internet of Things is increasingly changing into an omnipresent computing service, requiring vast volumes of knowledge storage and process. Unfortunately, due to the unique characteristics of resource constraints, self-organization and short range communication in IoT, it always resorts to the cloud for outsourced storage and computation. Security is one of the major challenges faced by cloud based IoT. The standard file protection technique relies on password based encryption schemes and they are vulnerable to brute force attacks. The reason is that, for a wrongly guessed key, the decryption process yields an invalid-looking plaintext message, confirming the invalidity of the key, while for the correct key it outputs a valid-looking plaintext message, confirming the correctness of the guessed key. Honey encryption helps to minimise this vulnerability. Hence, this paper proposed an extended Honey Encryption (XHE) scheme for enhancing the security of the cloud based IoT.