White background won't disappear!

I am working with a simple background in Photoshop Elements. I have to take 2 images into the new Illustrator CS3 and create the cover for manual I created. I am saving each file as an EPS and JPEG format. When I open the documents into Illustrator and drag them onto the blank colored background I am working with as the cover, I still get the white background around the each image. How do you rid of this?! I was told it was a transparency issue, but I am not sure how to delete the white background in Illstrator. I do know how to in Photoshop Elements, however. Any advice would be greatly appreciated.
kt

EPS only supports transparency if you have a clipping path. JPEG does not support transparency. Save your files as PSD and File > Place those.

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