Photo editing is as old as photography itself.
For example American Civil War photographs were published as engravings, based on more than one negative.
The pioneer among journalists distorting photographic images for news value was Bernarr Macfadden and his composograph in the mid-1920s. Composographic images were literally cut and pasted together using images of current celebrities and staged images (like bathroom, bedroom) created in Macfadden's in-house studio.
Joseph Stalin and his administration were very active in image manipulation, they used it regulary for ideological purposes. (1920-1950)
Another good example is photo of Trotsky reading Pravda. In 1925 Stalin excludes Trotsky from administration. Shortly after that a citizen has scratched Trotsky's picture from his own history book, as part of the his personal duty to support the Communist Party.
Best known photo manipulation of that time was Stalin and Nikolai Yezhov. Nikolai Yezhov was shot in 1940, few years after this photograph was taken. He was then removed and replaced by the waters of the Moscow-Volga Canal. Yezhov was commissar of water transport.
Another famous instance of controversy over photo manipulation, this time concerning race, arose in the summer of 1994. After O.J. Simpson was arrested for presumingly murdering his wife and her friend, multiple publications publsihed his mugshot. Time carried an edition featuring an altered mugshot, removing the photograph's color saturation (which some accused of making Simpson's skin darker) and reducing the size of the prisoner ID number.
Another example occurred in early 2005, when Martha Stewart's release from prison was featured on the cover of Newsweek; her face was placed on a slimmer woman's body to suggest that she will have lost weight while in prison.OPRAH
Recently the photo editing along with other visual manipulation techniques were spotted in the middle east.