TrueCrypt can create a virtual encrypted disk within a file and mount it as a real disk, or an entire hard disk partition or a device, such as USB memory stick, floppy disk, etc.

This software provides two levels of security: a hidden volume (more information may be found here), and a volume cannot be identified (no part of the volume can be distinguished from random data).

It utilizes the following encryption algorithms: AES (256-bit key), Blowfish (448-bit key), CAST5 (128-bit key), Serpent (256-bit key), Triple DES, and Twofish (256-bit key), and also supports cascading (e.g., AES-Serpent-Twofish).

It is based on Encryption for the Masses (E4M) 2.02a, conceived in 1997.

Features:

• Creates a virtual encrypted disk within a file and mounts it as a real disk.
• Encrypts an entire partition or storage device such as USB flash drive or hard drive.
• Encrypts a partition or drive where Windows is installed (pre-boot authentication).
• Encryption is automatic, real-time (on-the-fly) and transparent.
• Provides plausible deniability, in case an adversary forces you to reveal the password: Hidden volume (steganography) and hidden operating system.
• Encryption algorithms: AES-256, Serpent, and Twofish. Mode of operation: XTS.