A display apparatus and a method of processing an image thereof are provided. The method includes identifying at least one area of an input image by analyzing a dynamic range of the input image, obtaining at least one mapping function based on dynamic range information and brightness information of the at least one area and dynamic range information of the display apparatus, obtaining at least one virtual image where the dynamic range of the input image is converted using the at least one mapping function, synthesizing the at least one virtual image and the input image, and outputting the synthesized image.