I recently discovered an excellent open source tool for on-the-fly encryption. TrueCrypt is an open source project but it stands head and shoulders above most of the pay-as-you-play products currently littering the shelves. Using a novel system of encryption, it truly provides a high end option for any encryption need. This is a quick snapshot of the programming interface. Simple and effective.
If you want to learn more about TrueCrypt, check out their website. However, truth be told, there is a better manner of learning about TrueCrypt, check out this YouTube video of the process. Keep your files locked and secure with this elegent and free tool. It was also highly recommended on the Security Now podcast on TWIT TV.