Internet USAge is increasing day by day. Online financial (cash) transactions are increasing day by day like online Banking, online shopping etc With Such increased internet transactions, the need for the security also arises as hackers are being active to have access the private information like user id/Password, credit card no, pin etc. The objective of sniffing is to steal Password (E mail, FT, SQL Telnet, Web Etc), Email text etc. This paper focused on how to detect and prevent Password Sniffing on web applications using MD5 Algorithm encryption technique. The goal of this paper is to provide improved security by developing a method which prevents illegal access to the web applications.