A system and method for presenting on-demand masking of data as a software service in a distributed environment is provided. An application hosted on a computing device receives request for access to application data from a user. Credentials of the user are first validated in order to determine whether the user is authorized to access the requested application data. For an authorized user, a category of the user is determined to ascertain whether the user is privileged to obtain full access. In case the user is a privileged user, unmasked application data is fetched from a database utility and provided to the user. In case the user is not a privileged user, application data access request is transferred to a data masking service. Application data is fetched from database utility, masked based on pre-defined masking rules and provided to the user.