– You would have thought such a simple task, but not so easy on the iPhone. It seems that the only way is to go to the camera roll and choose email photo. However that is no good when you want to reply to a mail.
After a quick search on the Internet I found the answer. Select the photo you want to use and then highlight it and select copy. Now go back to your email and hit reply. You can then paste in the photo where you want it.