Handle the MouseMove event for the PictureBox, use GetPixel and SetPixel to change.
private void pictureBox1_MouseMove(object sender, MouseEventArgs e)
{
Bitmap b = (Bitmap) pictureBox1.Image;
Color c = b.GetPixel(e.X, e.Y);
c = Color.FromArgb(c.ToArgb() ^ 0xffffff);
b.SetPixel( e.X, e.Y, c);
pictureBox1.Invalidate();
}