The theoretical principles that underlie the representation and computation of higher-order structure in natural images are poorly understood. Recently, there has been considerable interest in using information theoretic techniques, such as independent component analysis, to derive representations for natural images that are optimal in the sense of coding efficiency. Although these approaches have been successful in explaining properties of neural representations in the early visual pathway and visual cortex, because they are based on a linear model, the types of image structure that can be represented are very limited. Here, we present a hierarchical probabilistic model for learning higher-order statistical regularities in natural images. This non-linear model learns an efficient code that describes variations in the underlying probabilistic density. When applied to natural images the algorithm yields coarse-coded, sparse-distributed representations of abstract image properties such as object location, scale and texture. This model offers a novel description of higher-order image structure and could provide theoretical insight into the response properties and computational functions of lower level cortical visual areas.