The paper is concerned with face recognition using the embedded hidden Markov model (EHMM) with second-order block-specific observations. The proposed method partitions a face image into a 2-D lattice type, composed of many blocks. Each block is represented by the second-order block-specific observation that consists of a combination of first- and second-order feature vectors. The first-order (or second-order) feature vector is obtained by projecting the original (or residual) block image onto the first (or second) basis vector that is obtained block-specifically by applying the PCA to a set of original (or residual) block images. A sequence of feature vectors obtained from the top-to-bottom and the left-to-right scanned blocks are used as an observation sequence to train EHMM. The EHMM models the face image in a hierarchical manner as follows. Several super states are used to model the vertical facial features such as the forehead, eyes, nose, mouth, and chin, and several states in the super state are used to model the localized features in a vertical face feature. Recognition is performed by identifying the person of the model that provides the highest value of observation probability. Experimental results show that the proposed recognition method outperforms many existing methods, such as the second-order eigenface method, the EHMM with DCT observations, and the second-order eigenface method using a confidence factor in terms of average of the normalized modified retrieval rank and false identification rate.