First things first: Do you have a call to background() in draw()?

Usual question in the Processing Implementations section: what language do you use?

To give a generic, language agnostic answer: instead of adding pixels on the surface, you have to memorize each movement of the mouse, usually in an ArrayList in Java, similar structure in other languages, and redraw the whole drawing on each call of draw() (or equivalent). Thus, undo can remove items from the collection. You probably want to memorize also the mouse down / mouse up events to serve as bounds for undo.

[EDIT] Moved...

You're welcome!