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Truecrypt is a free and open source on-the-fly disk encryption system. It supports both Windows and Linux, and offers several options for encryption. The first type is the virtual encrypted disk - a regular file that can be mounted as an actual disk, with all encryption done on-the-fly and transparently - the mounted disk functions like any other. The other option allows you to encrypt an entire disk or removable media such a a USB drive.

Several encryption modes are available - AES-256, Twofish, Serpent, and Triple DES. Additionally, you can use up to three at the same time. For the key - you can use a regular password, or an entire file of any type.

This is an amazing tool. I have been using it for several months for everything from client data on virtual encrypted disks, to encrypting my USB drives and even a 320GB external HD. It’s completely transparent and I have not noticed any degrade in disk performance.

I highly recommend this for anyone dealing with sensitive data - especially on laptops or removable media. Not only is it free, but it is more flexible than many proprietary disk encryption systems.