Can I alter a public domain image and reproduce it and sell it?

An image in the public domain can be copied, reproduced, distributed, etc. etc. because no one owns exclusive copyright rights to it. But someone can alter a public domain work and copyright that new derivative work, and the new elements they add (BUT NOT the original expression of the work, which has fallen into the public domain) would be subject to infringement. So if the someone in your query is you, you can sell your own derivative with words and color alterations. But if the someone in your query is someone else, and you want to alter their alteration, you should check to see if that someone is claiming a copyright in their alteration, and check with a copyright litigator to see if your alterations would expose you to a copyright infringement claim. Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

You didn't mention what kind of image. Does it depict a person or a group of people? Copyright in the image is a separate issue from the potential rights of publicity or privacy that apply if any recognizable persons appear in the photo. If yes, the legal status becomes more complicated, and you would be well served to consult an entertainment or First Amendment lawyer for advice. See link below for further information.

I write only to note that the copyrightable works that are in the "public domain" are only a small subset of the works that are publicly available. Some people erroneously believe that if an image is published on the internet then it is in the "public domain" and is free for all to use. Not so. All images created before 1923 are in the public domain and many created after 1923 that were not properly affixed with a copyright notice or which their owners have expressly relinquished their copyrights are in the public domain. The best book I've found to help identify and locate public domain works is The Public Domain: How to Find and Use Copyright-Free Writings, Music, Art & More by Stephen Fishman [available everywhere]. One caveat: If "someone's copy" of a public domain image is what you want to manipulate then you first need to lawfully acquire a copy. Downloading a copy from that "someone's" website may not be lawful if it violates the website terms of use. Assuming you can lawfully acquire a copy, manipulate it to your creative heart's content and, if it could be commercially valuable, register your copyright in the "derivative" work that you created. See copyright.gov. As noted, if there are living persons -- or celebrities dead for less than 70 years -- that are shown in the image then you need to speak with an intellectual property attorney licensed to practiced in your state to evaluate the right of publicity those persons may have in your commercial use of their image.

In addition to the information others have provided, I wanted to add that some people mistakenly believe that a work is dedicated to the public domain if it does not have a copyright notice. Copyright notice on published works (which includes works published on the Internet) is optional as of March 1, 1989. (But, having a copyright notice on a work is a good practice.) Also, original works enjoy copyright protection as soon as they are finalized in a tangible medium of expression. While copyright registration is needed to enforce a copyright in federal court, it is not at all necessary for a work to be protected under the copyright law. Unless the actual owner of the copyrighted work has stated that a work is in the public domain, it may be a safer bet to assume that the work actually is copyrighted. -- DISCLAIMER: The foregoing is not legal advice nor does it create an attorney-client relationship.